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OFFICIAL STATEMENT

NEW ISSUE RATINGS: Moody's: "Aa3" (negative outlook) - AGM (as defined herein), Underlying: "A3" BOOK ENTRY Standard & Poor's: "AAA" (negative outlook) - AGM (as defined herein), Underlying: "A-" See "RATINGS" herein.

In the opinion of Bond Counsel, based upon laws, regulations, rulings and decisions, and assuming continuing compliance with certain covenants made by the Corporation, interest on the Series 2010A Bonds is excludable from gross income for federal income tax purposes and is not an item of tax preference for purposes of the federal alternative minimum tax imposed on individuals and corporations, upon the conditions and subject to the limitations set forth herein under the caption "TAX EXEMPTION." Receipt of interest on the Series 2010A Bonds may result in other federal income tax consequences to certain holders of the Series 2010A Bonds. In the opinion of Bond Counsel, interest on the Series 2010A Bonds, the Series 2010B Bonds and the Series 2010C Bonds is also exempt from income tax by the Commonwealth of Kentucky, and the Series 2010A Bonds, the Series 2010B Bonds and the Series 2010C Bonds are exempt from ad valorem taxation by the Commonwealth of Kentucky and any of its political subdivisions.

KENTUCKY MUNICIPAL POWER AGENCY

$53,600,000 $122,405,000 Tax-Exempt Power System Revenue Bonds Taxable (Build America Bonds - Direct Pay) (Prairie State Project), Series 2010A Power System Revenue Bonds (Prairie State Project), Series 2010B

$7,725,000 Taxable Power System Revenue Bonds (Prairie State Project), Series 2010C Dated Date: Date of Issuance Due: As set forth herein on the inside front cover

The Bonds will bear interest payable semiannually on March 1 and September 1 of each year (each an "Interest Payment Date"), commencing September 1, 2010, as determined in accordance with the Trust Indenture dated as of April 1, 2010 (the "Indenture"), between the Kentucky Municipal Power Agency ("KMPA") and U.S. Bank National Association, Louisville, Kentucky, as trustee (the "Trustee"). Interest is payable by check mailed to the registered owners of the Bonds at their addresses appearing on the registration books kept by the Trustee as of the applicable record date preceding each Interest Payment Date. The Bonds are to be delivered in fully registered form in the authorized denominations described in the Indenture.

The Bonds are issued initially under a book-entry only system, registered in the name of CEDE & CO., as registered bondowner and nominee for The Depository Trust Company ("DTC"). DTC will act as securities depository for the Bonds. Individual purchasers of Book-Entry Interests in the Bonds will not receive certificates representing their interest in the Bonds.

The scheduled payment of the principal of and interest on the Bonds when due will be guaranteed under an insurance policy to be issued concurrently with the delivery of the Bonds by ASSURED GUARANTY MUNICIPAL CORP. (FORMERLY KNOWN AS FINANCIAL SECURITY ASSURANCE INC.)

THE BONDS ARE SUBJECT TO MANDATORY, OPTIONAL AND EXTRAORDINARY OPTIONAL REDEMPTION PRIOR TO MATURITY AS DESCRIBED HEREIN. THE BONDS ARE LIMITED OBLIGATIONS OF KMPA AND ARE PAYABLE SOLELY OUT OF REVENUES, FUNDS AND ASSETS OF THE TRUST ESTATE PLEDGED UNDER THE INDENTURE. KMPA DOES NOT HAVE ANY TAXING POWER. THIS OFFICIAL STATEMENT AND THE APPENDICES ATTACHED HERETO SHOULD BE READ IN THEIR ENTIRETY.

NEITHER THE COMMONWEALTH OF KENTUCKY, NOR ANY POLITICAL SUBDIVISION THEREOF OTHER THAN KMPA, NOR ANY MEMBER OF KMPA SHALL BE OBLIGATED TO PAY THE PRINCIPAL OF OR PREMIUM, IF ANY, OR INTEREST ON THE BONDS, AND NEITHER THE FAITH AND CREDIT NOR THE TAXING POWER OF THE COMMONWEALTH OF KENTUCKY OR ANY POLITICAL SUBDIVISION THEREOF OR ANY MEMBER OF KMPA IS PLEDGED TO THE PAYMENT OF THE PRINCIPAL OF OR INTEREST ON THE BONDS.

FOR MATURITIES, INTEREST RATES AND PRICES OR YIELDS, SEE THE INSIDE COVER

The Bonds are offered when, as and if issued by KMPA and accepted by the Underwriters, subject to the approval of legality and tax exemption by Rubin & Hays, Bond Counsel, Louisville, Kentucky. Certain legal matters will be passed on for KMPA by its counsel, McMurry & Livingston, PLLC, Paducah, Kentucky and B. Todd Wetzel, Esq., Princeton, Kentucky, and for the Underwriter by its counsel, Rubin & Hays, Louisville, Kentucky. This Official Statement is deemed final for the purposes of SEC Rule 15c2-12(b)(1). Delivery of the Bonds is expected on or about May 27, 2010. J.J.B. HILLIARD, W.L. LYONS, LLC Edward D. Jones & Co., L.P. J.P. Morgan Morgan Keegan & Company, Inc. Raymond James & Associates, Inc. Wells Fargo Securities

Dated: May 5, 2010 MATURITY SCHEDULE

$53,600,000 KENTUCKY MUNICIPAL POWER AGENCY TAX-EXEMPT POWER SYSTEM REVENUE BONDS (PRAIRIE STATE PROJECT), SERIES 2010A

September 1 September 1 CUSIP Year of Interest CUSIP Year of Interest 491501 Maturity Amount Rate Yield 491501 Maturity Amount Rate Yield CA8 2013 $3,365,000 2.000% 1.800% CK6 2018 $3,640,000 3.250% 3.530% CB6 2014 3,440,000 2.100% 2.250% CL4 2019 975,000 3.750% 3.730% CC4 2015 555,000 3.000% 2.650% CM2 2019 3,120,000 3.500% 3.730% CD2 2015 2,980,000 4.000% 2.650% CN0 2020 1,785,000 4.000% 3.900% CE0 2016 3,545,000 3.000% 3.070% CP5 2020 3,800,000 5.000% 3.900% CF7 2016 1,745,000 4.000% 3.070% CQ3 2021 5,860,000 5.000% 4.000% c CG5 2017 745,000 3.500% 3.330% CR1 2022 6,160,000 5.000% 4.020% c CH3 2017 3,090,000 3.000% 3.330% CS9 2023 5,455,000 5.000% 4.060% c CJ9 2018 315,000 3.500% 3.530% CT7 2024 3,025,000 4.000% 4.200% c - Priced to call ______

$122,405,000 KENTUCKY MUNICIPAL POWER AGENCY TAXABLE (BUILD AMERICA BONDS - DIRECT PAY) POWER SYSTEM REVENUE BONDS (PRAIRIE STATE PROJECT), SERIES 2010B

$51,365,000 Series 2010B Serial Bonds

September 1 September 1 CUSIP Year of Interest CUSIP Year of Interest 491501 Maturity Amount Rate Price 491501 Maturity Amount Rate Price CU4 2023 $1,015,000 5.560% 100 CY6 2027 $7,590,000 6.140% 100 CV2 2024 3,730,000 5.760% 100 CZ3 2028 7,905,000 6.240% 100 CW0 2025 7,020,000 5.910% 100 DA7 2029 8,230,000 6.290% 100 CX8 2026 7,295,000 6.040% 100 DB5 2030 8,580,000 6.390% 100

$71,040,000 Series 2010B Term Bonds

$71,040,000 - 6.490% - Term Bonds Due September 1, 2037 - Price 100 - CUSIP# 491501 DC3

______

$7,725,000 KENTUCKY MUNICIPAL POWER AGENCY TAXABLE POWER SYSTEM REVENUE BONDS (PRAIRIE STATE PROJECT), SERIES 2010C

September 1 September 1 CUSIP Year of Interest CUSIP Year of Interest 491501 Maturity Amount Rate Price 491501 Maturity Amount Rate Price DD1 2013 $ 990,000 2.470% 100 DH2 2017 $1,140,000 4.370% 100 DE9 2014 1,010,000 3.020% 100 DJ8 2018 1,190,000 4.820% 100 DF6 2015 1,050,000 3.430% 100 DK5 2019 1,255,000 5.060% 100 DG4 2016 1,090,000 3.980% 100 REGARDING USE OF THIS OFFICIAL STATEMENT

No dealer, salesperson or any other person has been authorized by KMPA or the Underwriters to give any information or to make any representations, other than the information and representations contained in this Official Statement, in connection with the offering of the Bonds and, if given or made, such information or representations must not be relied upon as having been authorized by KMPA or the Underwriters. The information in this Official Statement has been furnished by KMPA, the Members and other sources which are considered to be reliable, but is not guaranteed as to accuracy or completeness. The Underwriters have provided the following sentence for inclusion in this Official Statement. The Underwriters have reviewed the information in this Official Statement in accordance with, and as part of their respective responsibilities to investors under the federal securities laws as applied to the facts and circumstances of this transaction, but the Underwriters do not guarantee the accuracy or completeness of such information. The information and expressions of opinion in this Official Statement are subject to change without notice and neither the delivery of this Official Statement nor any sale of the Bonds shall, under any circumstances, create any implication that there has been no change in the affairs of KMPA or the Members since the date of this Official Statement.

IN MAKING AN INVESTMENT DECISION, INVESTORS MUST RELY ON THEIR OWN EXAMINATION OF THE TERMS OF THE OFFERING, INCLUDING THE MERITS AND RISKS INVOLVED. THE BONDS HAVE NOT BEEN RECOMMENDED BY ANY FEDERAL OR STATE SECURITIES COMMISSION OR REGULATORY AUTHORITY. FURTHERMORE, THE FOREGOING AUTHORITIES HAVE NOT CONFIRMED THE ACCURACY OR DETERMINED THE ADEQUACY OF THIS DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

IN CONNECTION WITH THE OFFERING OF THE BONDS, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT TRANSACTIONS THAT STABILIZE OR MAINTAIN THE MARKET PRICE OF SUCH BONDS AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.

THIS OFFICIAL STATEMENT DOES NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY THE BONDS, NOR SHALL THERE BE ANY SALE OF ANY OF THE BONDS BY OR TO ANY PERSON IN ANY JURISDICTION IN WHICH IT IS UNLAWFUL TO MAKE SUCH OFFER, SOLICITATION OR SALE.

This Official Statement contains statements which, to the extent they are not recitations of historical fact, constitute "forward-looking statements." In this respect, the words "estimate," "project," "anticipate," "expect," "intend," "believe" and similar expressions are intended to identify forward-looking statements. A number of important factors affecting KMPA's business and financial results could cause actual results to differ materially from those stated in the forward-looking statements. This Official Statement includes the front cover page immediately preceding this page and all Appendices hereto.

Assured Guaranty Municipal Corp. (formerly known as Financial Security Assurance Inc.) ("AGM") makes no representation regarding the Bonds or the advisability of investing in the Bonds. In addition, AGM has not independently verified, makes no representation regarding, and does not accept any responsibility for the accuracy or completeness of this Official Statement or any information or disclosure contained herein, or omitted herefrom, other than with respect to the accuracy of the information regarding AGM supplied by AGM and presented under the heading "Bond Insurance" and "Appendix I - Specimen Municipal Bond Insurance Policy". [This page intentionally left blank] TABLE OF CONTENTS Page

Introduction ...... 1 Kentucky Municipal Power Agency ...... 2 The Members...... 5 Security for the Bonds ...... 11 The Bonds ...... 13 Bond Insurance ...... 22 Prairie State Energy Campus Project...... 25 Plan of Financing...... 34 Certain Risks Associated with the Bonds ...... 34 Tax Matters ...... 36 Legal Matters...... 39 Litigation ...... 40 Disclosure Compliance ...... 40 Ratings...... 42 Independent Auditors...... 42 Underwriting ...... 42 Miscellaneous ...... 43

Appendix A Engineering Report and Feasibility Study for the Prairie State Project relating to the Kentucky Municipal Power Agency and its Members Appendix B Annual Long-Term Debt Service Requirements of the Kentucky Municipal Power Agency and Long-Term Debt Outstanding and Summary of Financial Statements Appendix C Audited Financial Statements of the Kentucky Municipal Power Agency for Fiscal Years Ended June 30, 2009 and 2008 Appendix D Operating & Financial Data for the Members Appendix E Audited Financial Statements of the Paducah Electric Plant Board for Fiscal Years Ended June 30, 2009 and 2008 Appendix F Audited Financial Statements of the Princeton Electric Plant Board for Fiscal Years Ended June 30, 2009 and 2008 Appendix G Demographic and Economic Data of KMPA's Members Appendix H Definitions and Summary of Certain Provisions of the Indenture and the Form of Power Sales Agreement Appendix I Specimen Municipal Bond Insurance Policy Appendix J Form of Bond Counsel Approving Legal Opinion Appendix K Form of Opinion of Bond Counsel Relating to the Power Sales Agreements [This page intentionally left blank] OFFICIAL STATEMENT

KENTUCKY MUNICIPAL POWER AGENCY

$7,725,000 Taxable Power System Revenue Bonds (Prairie State Project), Series 2010C

INTRODUCTION

This Official Statement, which includes the cover page and appendices, sets forth certain information relating to the issuance by the Kentucky Municipal Power Agency ("KMPA") in the aggregate principal amount of (i) $53,600,000 of its Tax-Exempt Power System Revenue Bonds (Prairie State Project), Series 2010A (the "Series 2010A Bonds"), (ii) $122,405,000 of its Taxable (Build America Bonds - Direct Pay) Power System Revenue Bonds (Prairie State Project), Series 2010B (the "Series 2010B Bonds") and (iii) $7,725,000 of its Taxable Power System Revenue Bonds (Prairie State Project), Series 2010C (the "Series 2010C Bonds") [hereinafter the Series 2010A Bonds, the Series 2010B Bonds and the Series 2010C Bonds may be collectively referred to as the "Bonds"].

The Bonds are being issued under authority of Chapters 65 and 96 of the Kentucky Revised Statutes (the "Act") and a Resolution of KMPA, and will be issued pursuant to and secured by a Trust Indenture, dated as of April 1, 2010 (the "Indenture") between KMPA and U.S. Bank National Association, Louisville, Kentucky (the "Trustee").

The American Recovery and Reinvestment Act of 2009 (the "Recovery Act") authorizes the Issuer to issue taxable bonds known as "Build America Bonds" to finance capital expenditures for which it could issue tax-exempt bonds and to elect to receive a subsidy payment from the federal government equal to 35% of the amount of each interest payment on such taxable bonds if the Issuer so designates such bonds. The Issuer has made an irrevocable election to designate the Series 2010B Bonds as "Build America Bonds" under Section 54AA of the Code and such Series 2010B Bonds shall be "qualified bonds" pursuant to Section 54AA(g) of the Code so that the Issuer will receive a refundable credit under Section 6431 of the Code equal to 35% of the stated interest paid on the Series 2010B Bonds.

The proceeds of the Bonds are to be used to (i) finance the completion of the acquisition, construction, development and equipping of an undivided interest in a mine mouth, pulverized coal- fueled power generating facility on a site in Washington, Randolph and St. Clair Counties, Illinois to be owned by KMPA (the "Project"); (ii) fund interest during construction; (iii) fund a debt service reserve; (vi) provide working capital for KMPA; and (v) pay the costs of issuance of the Bonds. THE BONDS ARE LIMITED OBLIGATIONS OF KMPA AND ARE PAYABLE SOLELY OUT OF THE REVENUES, FUNDS AND OTHER ASSETS OF THE TRUST ESTATE PLEDGED UNDER THE INDENTURE. KMPA DOES NOT HAVE ANY TAXING POWER.

NEITHER THE COMMONWEALTH OF KENTUCKY, NOR ANY POLITICAL SUBDIVISION THEREOF OTHER THAN KMPA, NOR ANY MEMBER SHALL BE OBLIGATED TO PAY THE PRINCIPAL OF OR PREMIUM, IF ANY, OR INTEREST ON THE BONDS, AND NEITHER THE FAITH AND CREDIT NOR THE TAXING POWER OF THE COMMONWEALTH OF KENTUCKY OR ANY POLITICAL SUBDIVISION THEREOF OR ANY MEMBER IS PLEDGED TO THE PAYMENT OF THE PRINCIPAL OF OR INTEREST ON THE BONDS.

Brief descriptions of the security for the Bonds, KMPA and the Project are included in this Official Statement. THIS OFFICIAL STATEMENT AND ITS APPENDICES SHOULD BE READ IN THEIR ENTIRETY. Such descriptions do not purport to be comprehensive or definitive. All references herein to the Indenture and the Power Sales Agreements are qualified in their entirety by reference to such documents, and references herein to the Bonds are qualified in their entirety by reference to the forms thereof included in the Indenture, and the information with respect thereto in the aforementioned documents, copies of all of which are available for inspection in the principal corporate trust office of the Trustee. Capitalized terms used herein shall have the meanings specified in the Indenture and the Power Sales Agreements unless otherwise indicated.

KENTUCKY MUNICIPAL POWER AGENCY

General

KMPA is a joint public agency duly organized under provisions of Chapter 65 of the Kentucky Revised Statutes pursuant to an Interlocal Cooperation Agreement dated February 7, 2005 (the "Interlocal Agreement") entered into by KMPA's founding members, the Electric Plant Board of the City of Paducah, Kentucky d/b/a Paducah Power System ("Paducah Electric") and the Electric Plant Board of the City of Princeton, Kentucky ("Princeton Electric"), both of which are municipal utilities located in the Commonwealth of Kentucky. Presently, Paducah Electric and Princeton Electric are the only two members of KMPA (the "Members"). However, it is anticipated that additional municipal utilities may request and may become members of KMPA in the future.

KMPA was organized for the purpose of providing municipal electric systems in the Commonwealth of Kentucky with an ongoing source and supply of electric power to meet their current requirements and anticipated growth in power consumption within the systems. Municipal electric systems must find new energy sources to supply the demands of their customers while maintaining a cost efficient operation of such facilities and energy sources. In forming KMPA, the Members determined that mutual advantage would be obtained from the coordinated planning, construction and operation of new energy facilities, and joint purchases, sales and exchanges of electric power.

KMPA, on behalf of its Members, coordinates planning, construction and operation of joint electric power supply projects and any and all facilities, including all equipment, structures,

2 machinery, and tangible and intangible property, real and personal, required for the generation or transmission of electrical energy, including any fuel supply or source useful for such a project.

Pursuant to Chapters 65 and 96 of the Kentucky Revised Statutes, KMPA is authorized and empowered to issue bonds to defray the costs of acquiring, constructing and equipping electric generation facilities such as the Project. From time to time, KMPA may issue future series of notes or bonds to provide for the completion of the Project and for additional projects to benefit its Members.

Governance

The governing body of KMPA is a Board of Directors (the "Board") composed of two directors designated by each KMPA Member, one of whom is required to be the chief executive officer, or equivalent thereto, of the Member. Three members of the Board of KMPA constitute a quorum for the transaction of business. The Board directs the business and affairs of KMPA. The Interlocal Cooperation Agreement under which KMPA was created and operates provides that each director shall have one vote. KMPA's officers and directors are as follows:

Ray McLennan Chairman Rickie W. Williams Vice Chairman John Humphries Treasurer David Clark Secretary and Assistant Treasurer

Ray McLennan has served as Chairman of KMPA's Board since February 2005. He has been a director of the Electric Plant Board of the City of Paducah since February, 1996 and for the last six years has served as its Chairman. Mr. McLennan retired from the Internal Revenue Service after 29 years as a Revenue Agent. He served on a public/private advisory board that improved liaison issues between taxpayers and the Internal Revenue Service. As an employee of the Internal Revenue Service, Mr. McLennan won numerous awards including the United States Treasury's highest career service award, the distinguished Albert Gallatin Award. Mr. McLennan attended the University of Louisville, the University of Kentucky and Murray State University. He currently owns and operates McLennan Tax Service with offices in Paducah and Louisville, Kentucky. Mr. McLennan has served seven years on the American Public Power Association's Advisory Board of Directors.

Rickie W. Williams has served as Vice Chairman of KMPA's Board since February 2005. He was appointed to the Princeton Electric Plant Board of Directors in 1991, and was elected Chairman in 1996. Mr. Williams is a practicing Certified Public Accountant having performed audits and financial consulting for utilities. He is a member of the Kentucky Society of CPAs and the AICPA. He has served on the Kentucky Society of Certified Public Accountants Board of Directors, received the Society's William A. Hifner, Jr. outstanding chapter president award, is a director of First Southern National Bank, Princeton Kentucky, and has served as past president and board member of several local and civic organizations. Mr. Williams has over 25 years experience in taxation, cash management and financial consulting. He is a licensed Series 6 and 63 registered representative. He received a Bachelor's degree in accounting from Murray State University in 1978.

3 John A. Humphries has served as KMPA's Treasurer since February 2005. He was named General Manager of Princeton Electric effective December 1998. Prior to joining Princeton Electric, Mr. Humphries was employed in the public power industry for more than twenty seven years with the Tennessee Valley Authority ("TVA"). Mr. Humphries has designed, constructed, and operated electric power systems, and has administered rates and contracts for wholesale and retail customers with the TVA. Mr. Humphries has taken leadership positions with the Tennessee Valley Public Power Association by serving on its board. He has also taken a leadership role with the American Public Power Association, as a leader in the development of the nationally recognized reliability program, Reliable Public Power Provider (RP3), received the APPA Preston Kramer Award for community service, and served as a member of the Membership Committee. He serves as a Prairie State Generating Campus Board of Director Alternate representing KMPA, serves as a member of the PSGC Legislative Committee, and as a member of the MISO Interface Committee. He serves as a American Municipal Power ("AMP") Director representing Kentucky and West Virginia and the Hydro Committee of AMP. He serves as a board member of the Lake Barkley Partnership and economic development agency for Princeton, Kentucky. He serves as a Director of the Princeton Trail of Tears Commission and Princeton Rotary Club. Mr. Humphries is a registered Professional Engineer in Kentucky and Tennessee, as well as a Certified Energy Manager with the Association of Energy Engineers. Mr. Humphries received a Bachelor of Science degree in Electrical Engineering from the University of Kentucky and a Master of Science degree in Engineering Administration from the University of Tennessee. In September 2006, Mr. Humphries was designated as the Assistant General Manager of KMPA.

David Clark has served as Secretary and Assistant Treasurer of KMPA since February 2005. He has been General Manager of Paducah Electric for seven years. He has over 40 years experience with investor-owned, cooperative, and municipal utilities and for the last 25 years has served as a general manager. Mr. Clark is a graduate of the University of Florida where he earned a Bachelor's Degree in Electrical Engineering. Mr. Clark was subsequently employed at Florida Power and Light Company ("FPL") in Miami, serving in a variety of positions which included 6 ½ years in the Engineering Department and approximately 6½ years in the Sales Department of the company where he was an account executive handling some of the company's largest and more sensitive accounts. After 13 years with FPL, Mr. Clark joined the Fayetteville, Tennessee Electric System as Director of Engineering and Operations. After three years in this position, Mr. Clark was selected as the General Manager of the Coosa Valley Electric Cooperative in Talladega, Alabama and later served for five years as the General Manager of the Carthage, Missouri Water and Electric Plant where he was responsible for power purchase, generation, distribution, water, and waste water activities of the city. He also served five years as the General Manager of the Suwannee Valley Electric Cooperative at Live Oak, Florida and while serving in this position was instrumental in having the cooperative enter the Direct Broadcast Satellite (DBS) business. After successfully developing this subsidiary, Mr. Clark moved to the Tennessee Valley Electric Cooperative in Savannah, Tennessee where he served as General Manager for four years. He was then briefly employed as Electric Director of the City of Lebanon, Ohio where he managed power production, distribution, and telecommunication activities. In August 2000, Mr. Clark was appointed General Manager of Paducah Electric. Mr. Clark is a registered professional engineer in four states and a graduate of the American Public Power Association's Executive Development Program and the Tennessee Valley Public Power Association's Executive Development Program. Mr. Clark currently serves as a board member of the Greater Paducah Economic Development Council and the Paducah Area Chamber of Commerce. In September 2006, Mr. Clark was named General Manager of KMPA.

4 Management and Administration

KMPA's General Manager, Assistant General Manager and Chief Financial Officer serve as the management team for KMPA. KMPA's Chief Financial Officer is Heather Overby.

Heather Overby has served as the Chief Financial Officer for KMPA since November, 2009. She has over 12 years experience with electric municipal utilities. Ms. Overby is a graduate of Transylvania University, where she earned a Bachelor's Degree in Business Administration with an Emphasis in Accounting and Finance, and a graduate of Regis University where she earned a Master's Degree in Business Administration with an Emphasis in Finance and Accounting. Ms. Overby is a Certified Public Accountant, having formerly been employed as an auditor with Deloitte Touche Tohmatsu. She is a member of the Kentucky Society of CPAs and the AICPA. Ms. Overby currently serves as a Vice-Chairman on the American Public Power Association Business and Finance Conference Planning Committee and as a member of the Accounting Advisory Committee for South Eastern Data Cooperation, which provides electric utility billing and accounting software. She also serves as a board member for several local charitable organizations.

Baker Tilly Virchow Krause LLP, has audited the financial statements of KMPA since its creation in 2005. In addition, the auditor has assisted KMPA in establishing its internal accounting system. R. W. Beck, Inc., consulting engineers, has provided various services to KMPA since 2005 and to its Members prior to that time, and has been providing direct Project oversight and monitoring on behalf of KMPA.

KMPA will continue to rely on this team of outside experts to augment its management and operations functions and Project monitoring support to its Members through commercial operation of the Project and thereafter, as needed. KMPA's operating budget reflects the continued use of these qualified outside resources for various functions. KMPA will continue to rely on outside expertise until its internal operations and membership levels justify the establishment of additional permanent positions within KMPA and qualified staff are hired.

Financial Statements and Management's Discussion and Analysis

KMPA's audited financial statements and management's discussion and analysis for the years ended June 30, 2009 and 2008 are included as Appendix C hereto. KMPA files annual information with the Electronic Municipal Market Access system (see, DISCLOSURE COMPLIANCE herein). Such information will also be available by contacting KMPA at 1500 Broadway, Paducah, Kentucky 42001 or by telephone at (270) 408-5020.

THE MEMBERS

General

The Members, Paducah Electric and Princeton Electric, are each located in the western portion of the Commonwealth of Kentucky, and are located on the northern fringe of the territory historically served by TVA. Paducah Electric and Princeton Electric were created in 1945 and 1958, respectively, and are each governed by a five-member Electric Plant Board. Members of the Electric

5 Plant Boards serve staggered four-year terms and are appointed by the mayors and approved by the City Commissions of the respective communities in which they serve. However, the Electric Plant Boards are separate and distinct political subdivisions of the Commonwealth of Kentucky and act independently of their respective City governments.

Power Supply

From the early 1960's until just recently, the Members were full requirements wholesale distribution customers of TVA. During the almost five decades that the TVA Wholesale Power Contracts were in force, TVA supplied all of the Members' power and energy requirements in excess of relatively small allotments of power received by each Member from federally-owned facilities through the Southeastern Power Administration ("SEPA"). Consequently, neither Member had the need to construct or acquire any other generating or contractual power supply resources for serving its power and energy requirements. Each Member's Wholesale Power Contract with TVA was terminable upon five years notice prior to termination and on December 14, 2004 Paducah Electric provided TVA with notice of termination of its Wholesale Power Contract effective December 21, 2009. Princeton Electric followed suit the next month giving notice to TVA that it would terminate its Wholesale Power Contract effective January 25, 2010.

The events leading up to each Member's decision to terminate its Wholesale Power Contract with TVA began in 2003, when R.W. Beck, Inc. ("R.W. Beck") was retained by the Members to prepare the first of several power supply feasibility studies for each Member. Said feasibility studies investigated and analyzed alternative power supply strategies available to the Members for the period of 2010 and beyond. The results of these studies indicated that there were considerable economic benefits to be derived by the Members through the procurement of and ownership in long term baseload electric generating resources, combined with the development of local peaking generation resources within the Members' respective electric systems, and supplemented with opportunistic purchases and sales of electric power and energy within the regional marketplace.

Based upon the feasibility studies, the Members determined that mutual advantage would be derived from the coordinated planning, construction and operation of new energy facilities and joint purchases, sales and exchanges of electric power and energy. KMPA was subsequently organized by the Members on February 7, 2005 in order to acquire an interest in the development of the Project, to provide for additional services necessary to implement the programs and procedures required to obtain the long-term benefits indicated by the initial power supply studies and to manage the operations of the Members' resource portfolios.

In anticipation of its Members' need for power upon termination of their Wholesale Power Contracts with TVA, KMPA in 2008 purchased blocks or strips of electric capacity and energy of varying sizes from certain electric power suppliers. These power purchases are sufficient to cover the estimated capacity and energy needs of both Members through 2011. KMPA has also acquired on behalf of its Members options to purchase certain additional strips of power through 2014. These options may be exercised on a day-ahead basis at a price tied to a MISO price index. All of KMPA's power purchase transactions are considered "firm" obligations in that they are backed by liquidated damages provisions in the event of non-delivery. Upon the termination of each Member's TVA Wholesale Power Contract, KMPA began providing all of the Member's wholesale electric service requirements.

6 In order to receive delivery from KMPA of power and energy purchased on its behalf or generated by the Project, each Member has constructed a new physical interconnection from its distribution system to the nearby 161 kV transmission system of Louisville Gas & Electric/Kentucky Utilities ("LG&E/KU"). KMPA has a network integration transmission service agreement in place with LG&E/KU which facilitates the provision of the transmission services required by its Members. Each Member also has in place an agreement with TVA for the provision of emergency back-up power across the TVA transmission system in the event of disruption of service over the LG&E/KU transmission grid.

The following sections provide historical power and energy requirements, customer data, and projections of power and energy requirements at the wholesale level for each Member.

Paducah Electric

The Paducah Electric system consists of approximately 22,500 total customers. Approximately 18,700, or 83%, are residential customers, approximately 3,320, or 15%, are small and large commercial customers, and the remaining 2% are classified as "other" customers.

The following table shows the actual non-coincident peak demand and energy requirements for Paducah Electric for the five fiscal year period of 2005 through 2009 as prepared by Paducah Electric, based on actual sales data.

PADUCAH ELECTRIC HISTORICAL POWER AND ENERGY REQUIREMENTS (FISCAL YEAR SALES)

Energy Calendar Peak Demand Percent Requirements Percent Year (MW) Growth (MWh) Growth 2005 154.0 - 586,742 - 2006 158.0 2.6% 626,750 6.8% 2007 154.0 -2.5% 621,481 -0.8% 2008 159.0 3.2% 657,178 5.7% 2009 150.0 -5.7% 606,178 -7.8%

Peak demand and energy requirements vary from year to year because of various factors, including weather and economic conditions. For example, a catastrophic ice storm in early 2009 accounts for the significant reduction in energy sales for that year.

The following table shows the projected non-coincident peak demand and energy requirements for Paducah Electric for the ten fiscal year period 2011 through 2020 on a purchase basis, including distribution system losses, as prepared by R. W. Beck, using historical values, projected number of customers and known customer additions, customer usage assumptions and normal weather conditions.

7 PADUCAH ELECTRIC PROJECTED POWER AND ENERGY REQUIREMENTS (WHOLESALE PURCHASE BASIS)

Energy Calendar Peak Demand Percent Requirements Percent Year (MW) Growth (MWh) Growth 2011 160.0 - 673,600 - 2012 163.7 2.3% 689,100 2.3% 2013 166.0 1.4% 698,900 1.4% 2014 168.4 1.4% 708,750 1.4% 2015 170.7 1.4% 718,800 1.4% 2016 173.2 1.4% 729,000 1.4% 2017 175.6 1.4% 739,300 1.4% 2018 178.1 1.4% 749,700 1.4% 2019 180.6 1.4% 760,300 1.4% 2020 183.2 1.4% 771,100 1.4%

The changes in Paducah Electric's demand and energy requirements from year to year reflect the net effects of population growth and economic growth experienced by Paducah Electric's customers, incremental and decremental load impacts, and the relative effects of actual weather conditions that vary from typical or normal conditions.

Princeton Electric

The Princeton Electric system consists of approximately 3,930 total customers. Approximately 3,125, or 80%, are residential customers, approximately 715, or 18%, are small and large commercial customers, 78, or 2% are industrial customers and the remaining less than 1% are classified as "other" customers.

The following table shows the actual non-coincident peak demand and energy requirements for Princeton Electric for the five fiscal year period of 2005 through 2009 as prepared by Princeton Electric based on actual sales data.

PRINCETON ELECTRIC HISTORICAL POWER AND ENERGY REQUIREMENTS (FISCAL YEAR SALES)

Energy Calendar Peak Demand Percent Requirements Percent Year (MW) Growth (MWh) Growth 2005 23.7 - 104,569 - 2006 24.1 1.7% 108,185 3.5% 2007 25.6 6.2% 109,138 0.9% 2008 26.7 4.3% 112,943 3.5% 2009 24.8 -7.1% 106,534 -5.7%

8 Peak demand and energy requirements vary from year to year because of various factors, including weather and economic conditions. For example, a catastrophic ice storm in early 2009 accounts for the significant reduction in energy sales for that year.

The following table shows the projected non-coincident peak demand and energy requirements for Princeton Electric for the ten fiscal year period 2011 through 2020 on a purchase basis, including distribution system losses, as prepared by R. W. Beck, using historical values, projected number of customers and known customer additions, customer usage assumptions and normal weather conditions.

PRINCETON ELECTRIC PROJECTED POWER AND ENERGY REQUIREMENTS (WHOLESALE PURCHASE BASIS)

Energy Calendar Peak Demand Percent Requirements Percent Year (MW) Growth (MWh) Growth 2011 28.5 - 125,500 - 2012 32.4 13.8% 148,200 18.0% 2013 32.7 0.8% 149,300 0.8% 2014 32.9 0.8% 150,400 0.8% 2015 33.2 0.8% 151,500 0.8% 2016 33.4 0.8% 152,700 0.8% 2017 33.7 0.8% 153,800 0.8% 2018 33.9 0.8% 155,000 0.8% 2019 34.2 0.8% 156,320 0.8% 2020 34.4 0.8% 157,400 0.8%

The changes in Princeton Electric's demand and energy requirements in 2012 reflect a planned expansion by a larger industrial customer, and thereafter from year to year reflect the net effects of population growth and economic growth experienced by Princeton Electric's customers, incremental and decremental load impacts, and the relative effects of actual weather conditions that vary from typical or normal conditions.

The respective service area of each Member includes most of the respective city and a portion of the county beyond the city limits. Retail electric service in areas adjoining the service areas of the Members is provided by investor-owned utilities or rural electric cooperatives which, in some instances, also serve a limited number of customers within the corporate limits of the Members' respective cities. Although the service area of neither Member is regulated by the Kentucky Public Service Commission, Kentucky law protects the territory being served by each Member from competition by another retail electric utility.

See Appendix A, "Engineering Report and Feasibility Study for the Prairie State Project relating to the Kentucky Municipal Power Agency and its Members" prepared by R.W. Beck. In addition, Appendix D provides pertinent operating and financial information for the Members and Appendix G provides general demographic and economic data regarding the areas where the Members provide their respective service. Paducah Electric's audited financial statements and management's discussion and analysis for the years ended June 30, 2009 and 2008 are included as

9 Appendix E hereto. Princeton Electric's audited financial statements and management's discussion and analysis for the years ended June 30, 2009 and 2008 are included as Appendix F hereto.

Power Sales Agreements

Both Members have approved respective Power Sales Agreements (the "Power Sales Agreements") with KMPA to purchase a portion of their respective electrical requirements from KMPA's share of the electric power and energy to be generated by the Project. At the present time Paducah Electric is entitled to purchase 83.9% of KMPA's share of the Project and Princeton Electric is entitled to purchase the remaining 16.1%. Each of the Power Sales Agreements is a "take or pay" agreement under which each Member has agreed to pay for its portion of KMPA's share of the Project at rates sufficient to enable KMPA to recover all of its costs incurred with respect to the Project. The Members are obligated to pay for their respective portions of the Project whether or not the Project is complete, operable, or operating and whether or not the Project's output is suspended, interrupted, interfered with, reduced, curtailed or terminated in whole or in part.

From time to time, in the event that one or both of the Members do not require the full entitlement of their respective shares of the Project's output, KMPA will make an effort to sell such unused power and energy in the energy marketplace. However, KMPA is not obligated, except to its Members, to sell power and energy under long-term or forward contracts, and any failure of KMPA to sell such power and energy in the energy marketplace shall not relieve the obligations of the Members to pay for their respective portions of the cost of the Project, including debt service on the Bonds.

Supplemental Power Purchases

Though there is no contractual obligation for a Member to purchase all of its power and energy requirements through KMPA, Paducah Electric and Princeton Electric anticipate that KMPA will supply a portion of their respective power requirements beyond those produced by the Project through a portfolio of power purchase agreements with investor-owned utilities and power marketers. These agreements will enable KMPA to furnish the Members' intermediate electrical needs and provide back-up power and energy arrangements in the event that output of the Project is interrupted. As previously noted, KMPA already has put in place a number of power purchase agreements for the provision of a bridge power supply to the Members during the period from the expiration of their TVA power contracts until the Project commences commercial operation. KMPA provides these power supply services to its Members under respective Partial Requirements Power Sales Agreements entered into by KMPA with each of its Members in December 2009. The Partial Requirements Power Sales Agreement provides a framework under which a Member can acquire from KMPA not only a portion of its power supply needs, but also a number of other energy-related services.

Additional Power Supply Resources of the Members

Paducah Electric is nearing completion of construction and testing of a gas-fired combustion turbine peaking facility located within its system and adjacent to one of its existing 69 KV substations. The peaking plant consists of two new Pratt & Whitney Power Systems FT8-3 Swift Pac combustion turbine packages and all necessary ancillary equipment. Each of the peaking plant's

10 two generators has a nominal capacity of 62 MW. The total capability of the peaking units will be approximately 110 MW at expected peak summer ambient temperatures. The combustion turbine generating plant is proceeding on schedule for substantial completion in May 2010.

Princeton Electric is not anticipating developing a peaking facility at this time.

See Appendix A, "Engineering Report and Feasibility Study for the Prairie State Project relating to the Kentucky Municipal Power Agency and its Members" prepared by R.W. Beck.

SECURITY FOR THE BONDS

Pledge Under the Indenture

The Bonds are limited obligations of KMPA payable, on a parity basis with KMPA's outstanding (i) Power System Revenue Bonds (Prairie State Project), Series 2007A (the "Series 2007A Bonds") and (ii) Taxable Power System Revenue Bonds (Prairie State Project), Series 2007B (the "Series 2007B Bonds") solely from and secured, to the extent and as provided in the Indenture, by a pledge to the Trustee for the benefit of the Bondowners of the following (the "Trust Estate"):

(1) All Revenues and all of KMPA's rights, title and interest in and to the Power Sales Agreements, including, but without limiting the generality of the foregoing, KMPA's rights, title, and interest in and to the Revenues and the present and continuing right to make claim for, collect and receive any of the money, income, revenues, issues, profits and other amounts payable or receivable thereunder, to bring actions and proceedings thereunder or for the enforcement thereof, and to do any and all things which KMPA or any other person is or may become entitled to do under the Power Sales Agreements, but reserving, however, to KMPA its Retained Rights.

(2) All rights, title and interest of KMPA, if any, whether now or hereafter in effect, respecting:

(A) KMPA's undivided fee interest in the Project;

(B) the right of KMPA to receive power generated by the Project;

(C) all choses in action and all choses in possession now or hereafter existing to the benefit of or arising from the benefit of KMPA with respect to the Bonds (except for KMPA's Retained Rights); and

(D) all proceeds of all the foregoing.

(3) All funds and accounts established under the Indenture and the investments thereof, if any, and money, securities and obligations therein (subject to disbursements from any such fund or account upon the conditions set forth in the Indenture); and

(4) All money and securities from time to time held by the Trustee under the terms of the Indenture and any and all other real or personal property of every name and nature by delivery

11 or by writing of any kind pledged or assigned as and for additional security under the Indenture, by KMPA or by anyone in its behalf or with its written consent, to the Trustee.

Power Sales Agreements

Payments received by KMPA pursuant to the Power Sales Agreements are designed to permit KMPA to provide sufficient moneys to the Trustee to make the required principal and interest payments, when due, on the Bonds, including the possible redemption of Bonds prior to maturity.

Each Power Sales Agreement may be terminated earlier if all Bonds issued under the Indenture have been paid or provision for such payment has been made pursuant to the Indenture and all contractual obligations entered into by KMPA for the generation, purchase, transmission or transformation of power and energy have been terminated and provision has been made for the payment of any residual costs.

Pursuant to the Power Sales Agreements, KMPA shall establish such rates and charges which shall be billed to each Member, based on the Member's Entitlement Percentage, on a monthly basis, or such other period as determined by KMPA, in order to provide KMPA with sufficient revenues to pay its Monthly Project Costs. "Monthly Project Costs" shall mean all of KMPA's costs as offset by credits and revenues, resulting from the ownership, fueling, operation, maintenance and termination, retirement from service or decommissioning of, and necessary repairs, renewals, replacements and additions to, the Project, including, but not limited to, costs as offset by credits and revenues related to the transmission, interconnection and deliverability of the Project and all MISO Prairie State Charges. The Monthly Project Costs include, without limitation, debt service on the Bonds, deposits required to be made into the Funds established under the Indenture and such additional amounts as are necessary to satisfy any debt service coverage requirement in the Indenture.

Rate Covenant and Coverage

KMPA has agreed under the Indenture that, while any of the Bonds authorized thereunder remain outstanding and unpaid, the rates charged and collected under the Power Sales Agreements for the sale of power produced by the Project shall be fixed, maintained and, if necessary, adjusted from time to time, to be sufficient, so as to produce, based upon the audited financial statements of KMPA relating to the Project, in each Fiscal Year, a Debt Service Coverage Ratio equal to at least 1.10:1 (the "Rate Coverage"); and that the rates prevailing at any time will not be reduced except upon the basis of a statement of an Independent Engineer, after necessary investigation, that in its opinion the Rate Coverage will not thereby be reduced below such level.

The Trustee may draw funds from the Reserve Fund (the "Reserve Fund") of KMPA to pay the principal of, and/or the interest on, the Bonds in the event Revenues received by KMPA under the Power Sales Agreements are insufficient to pay bondholders.

See Appendix H, "Definitions and Summary of Certain Provisions of the Indenture and the Form of Power Sales Agreement" for a description of the various Funds and Accounts and other provisions of the Indenture.

12 THE BONDS

Description of the Bonds

The Bonds will accrue interest from the date of issuance and will mature on September 1 in each of the years set forth on the inside front cover of this Official Statement. The Bonds will bear interest at the interest rate set forth on the inside front cover of this Official Statement payable semiannually on March 1 and September 1 of each year, commencing on September 1, 2010, until maturity or redemption.

Interest on the Bonds shall be computed on the basis of a 360-day year consisting of twelve 30-day months.

The Bonds will be issued in fully registered form in the denomination of $5,000 or any integral multiple of $5,000 ("Authorized Denominations").

Payment of Bonds

The principal of and premium, if any, and interest on the Bonds are payable in any coin or currency of the United States of America. U.S. Bank National Association has been appointed Trustee and Paying Agent for the Bonds (the "Trustee"). The principal of and premium, if any, on the Bonds will be paid upon surrender thereof at the corporate trust office of the Trustee in Louisville, Kentucky.

Interest on each Bond shall be paid by check mailed on the Interest Payment Date to the Person who is the Owner thereof as shown on the Bond Register as of 5:00 p.m., Eastern Time, on the applicable Record Date, at the address of the Owner as it appears on the Record Date on the Bond Register. At the direction of an Owner of $1,000,000 or more of the Bonds, payments of interest shall be made by electronic transfer by the Trustee in immediately available funds to an account in the United States designated in writing by such Owner to the Trustee not less than five days prior to the Interest Payment Date.

THE BONDS ARE LIMITED OBLIGATIONS OF KMPA AND ARE PAYABLE SOLELY OUT OF THE REVENUES, FUNDS AND OTHER ASSETS OF THE TRUST ESTATE PLEDGED UNDER THE INDENTURE. KMPA DOES NOT HAVE ANY TAXING POWER.

13 Registration, Transfer and Exchange

The Trustee shall maintain books (the "Bond Register") for the registration and for the transfer of the Bonds.

Upon surrender for registration of transfer of any Bond at the principal office of the Trustee, the Trustee shall authenticate and shall deliver a new Bond or Bonds in the same aggregate principal amount as the Bond surrendered. No transfer of any Bond shall be binding upon the Trustee unless made at such office and shown on the Bond Register. Unless and until the Trustee notifies the Bondowners in writing of any change of Trustee or of any change of the principal office thereof, the Trustee's principal office shall be One Financial Square, Louisville, Kentucky 40202, Attention: Corporate Trust Administration.

The Trustee shall not be required to exchange or transfer any Bond or portion thereof which has been called for redemption.

Book-Entry Only System

The Bonds initially will be issued solely in book-entry form to be held in the book-entry only system maintained by The Depository Trust Company ("DTC"), New York, New York. So long as such book-entry system is used, only DTC will receive or have the right to receive physical delivery of Bonds and, except as otherwise provided therein with respect to Beneficial Owners (as defined below) of Beneficial Ownership Interests (as defined below), Beneficial Owners will not be or be considered to be, and will not have any rights as, owners or holders of the Bonds under the Indenture.

The following information about the book-entry only system applicable to the Bonds has been supplied by DTC. KMPA, the Trustee and the Underwriter make no representations, warranties or guarantees with respect to its accuracy or completeness.

DTC will act as securities depository for the Bonds. The Bonds will be issued as fully-registered securities registered in the name of Cede & Co. (DTC's partnership nominee) or such other name as may be requested by an authorized representative of DTC. One fully-registered Bond certificate will be issued for each maturity of the Bonds, in the aggregate principal amount of such maturity, and will be deposited with DTC.

DTC, the world's largest depository, is a limited-purpose trust company organized under the New York Banking Law, a "banking organization" within the meaning of the New York Banking Law, a member of the Federal Reserve System, a "clearing corporation" within the meaning of the New York Uniform Commercial Code, and a "clearing agency" registered pursuant to the provisions of Section 17A of the Securities Exchange Act of 1934. DTC holds and provides asset servicing for over 2 million issues of U.S. and non-U.S. equity issues, corporate and municipal debt issues, and money market instruments from over 85 countries that DTC's participants ("Direct Participants") deposit with DTC. DTC also facilitates the post-trade settlement among Direct Participants of sales and other securities transactions in deposited securities, through electronic computerized book-entry transfers and pledges between Direct Participants' accounts. This eliminates the need for physical movement of securities certificates. Direct Participants include both U.S. and non-U.S. securities

14 brokers and dealers, banks, trust companies, clearing corporations, and certain other organizations. DTC is a wholly-owned subsidiary of The Depository Trust & Clearing Corporation ("DTCC"). DTCC, in turn, is owned by a number of Direct Participants of DTC and Members of the National Securities Clearing Corporation, Government Securities Clearing Corporation, MBS Clearing Corporation, and Emerging Markets Clearing Corporation, (NSCC, GSCC, MBSCC, and EMCC, also subsidiaries of DTCC), as well as by the New York Stock Exchange, Inc., the American Stock Exchange LLC, and the National Association of Securities Dealers, Inc. Access to the DTC system is also available to others such as both U.S. and non-U.S. securities brokers and dealers, banks, trust companies, and clearing corporations that clear through or maintain a custodial relationship with a Direct Participant, either directly or indirectly ("Indirect Participants"). DTC has Standard & Poor's highest rating: AAA. The DTC Rules applicable to its Participants are on file with the Securities and Exchange Commission. More information about DTC can be found at www.dtcc.com.

Purchases of Bonds under the DTC system must be made by or through Direct Participants, which will receive a credit for the Bonds on DTC's records. The ownership interest of each actual purchaser of each Bond ("Beneficial Owner") is in turn to be recorded on the Direct and Indirect Participants' (collectively, "Participants") records. Beneficial Owners will not receive written confirmation from DTC of their purchase. Beneficial Owners are, however, expected to receive written confirmations providing details of the transaction, as well as periodic statements of their holdings, from the Direct or Indirect Participant through which the Beneficial Owner entered into the transaction. Transfers of ownership interests in the Bonds are to be accomplished by entries made on the books of Direct and Indirect Participants acting on behalf of Beneficial Owners. Beneficial Owners will not receive certificates representing their ownership interests in Bonds, except in the event that use of the book-entry system for the Bonds is discontinued.

To facilitate subsequent transfers, all Bonds deposited by Direct Participants with DTC are registered in the name of DTC's partnership nominee, Cede & Co., or such other name as may be requested by an authorized representative of DTC. The deposit of Bonds with DTC and their registration in the name of Cede & Co. or such other DTC nominee do not effect any change in beneficial ownership. DTC has no knowledge of the actual Beneficial Owners of the Bonds; DTC's records reflect only the identity of the Direct Participants to whose accounts such Bonds are credited, which may or may not be the Beneficial Owners. The Direct and Indirect Participants will remain responsible for keeping account of their holdings on behalf of their customers.

Conveyance of notices and other communications by DTC to Direct Participants, by Direct Participants to Indirect Participants, and by Direct Participants and Indirect Participants to Beneficial Owners will be governed by arrangements among them, subject to any statutory or regulatory requirements as may be in effect from time to time. Beneficial Owners of Bonds may wish to take certain steps to augment the transmission to them of notices of significant events with respect to the Bonds, such as redemptions, tenders, defaults, and proposed amendments to the Bond documents. For example, Beneficial Owners of Bonds may wish to ascertain that the nominee holding the Bonds for their benefit has agreed to obtain and transmit notices to Beneficial Owners. In the alternative, Beneficial Owners may wish to provide their names and addresses to the registrar and request that copies of notices be provided directly to them.

15 Redemption notices shall be sent to DTC. If less than all of the Bonds within an issue are being redeemed, DTC's practice is to determine by lot the amount of the interest of each Direct Participant in such issue to be redeemed.

Neither DTC nor Cede & Co. (nor any other DTC nominee) will consent or vote with respect to Bonds unless authorized by a Direct Participant in accordance with DTC's Procedures. Under its usual procedures, DTC mails an Omnibus Proxy to KMPA as soon as possible after the record date. The Omnibus Proxy assigns Cede & Co.'s consenting or voting rights to those Direct Participants to whose accounts Bonds are credited on the record date (identified in a listing attached to the Omnibus Proxy).

Redemption proceeds, distributions, and interest payments on the Bonds will be made to Cede & Co. or such other nominee as may be requested by an authorized representative of DTC. DTC's practice is to credit Direct Participants' accounts upon DTC's receipt of funds and corresponding detail information from KMPA or the Trustee, on payable date in accordance with their respective holdings shown on DTC's records. Payments by Participants to Beneficial Owners will be governed by standing instructions and customary practices, as is the case with securities held for the accounts of customers in bearer form or registered in "street name," and will be the responsibility of such Participant and not of DTC nor its nominee, Trustee, or KMPA, subject to any statutory or regulatory requirements as may be in effect from time to time. Payment of redemption proceeds, distributions, and dividend payments to Cede & Co. (or such other nominee as may be requested by an authorized representative of DTC) is the responsibility of KMPA or Trustee, disbursement of such payments to Direct Participants will be the responsibility of DTC, and disbursement of such payments to the Beneficial Owners will be the responsibility of Direct and Indirect Participants.

DTC may discontinue providing its services as depository with respect to the Bonds at any time by giving reasonable notice to KMPA or Trustee. Under such circumstances, in the event that a successor depository is not obtained, Bond certificates are required to be printed and delivered.

KMPA may decide to discontinue use of the system of book-entry transfers through DTC (or a successor securities depository). In that event, Bond certificates will be printed and delivered.

The information in this section concerning DTC and DTC's book-entry system has been obtained from sources that KMPA believes to be reliable, but KMPA makes no warranties or representations regarding the accuracy thereof.

Redemption of the Bonds

Optional Redemption. The Series 2010A Bonds and the Series 2010B Bonds maturing on and prior to September 1, 2020, shall not be subject to redemption prior to maturity. The Series 2010A Bonds and the Series 2010B Bonds maturing on or after September 1, 2021, are subject to redemption, in whole or in part, by KMPA prior to their stated maturities, at any time falling on or after September 1, 2020 (less than all Bonds of a single maturity to be selected in such manner as the Registrar may determine) at a redemption price equal to 100% of the principal amount of the respective Series 2010A Bonds or Series 2010B Bonds called for redemption, plus unpaid interest accrued to the date of redemption.

16 The Series 2010C Bonds shall not be subject to optional redemption prior to maturity as described in the preceding paragraph. The Series 2010C Bonds may, however, be subject to redemption prior to maturity under the circumstances described below.

Extraordinary Optional Redemption. Prior to September 1, 2020, the Series 2010B Bonds are also subject to redemption prior to their maturity, at the option of KMPA, as a whole or in part, on any date prior to their maturity, upon the occurrence of an Extraordinary Event, at a redemption price equal to the greatest of (i) 100% of the principal amount of the Series 2010B Bonds to be redeemed; (ii) the initial offering price of the Series 2010B Bonds, as shown on the inside front cover page of this Official Statement; or (iii) the sum of the present values of the remaining scheduled payments of principal of and interest on the Series 2010B Bonds to be redeemed, not including any portion of those payments of interest accrued and unpaid as of the date on which the Series 2010B Bonds are to be redeemed, discounted to the date on which the Series 2010B Bonds are to be redeemed on a semi-annual basis, assuming a 360-day year consisting of twelve 30-day months, at a discount rate equal to the Comparable Treasury Yield, plus 100 basis points; plus, in each case, accrued interest on the Series 2010B Bonds to be redeemed to the redemption date.

The term "Comparable Treasury Issue" means the Treasury Department security selected by the Independent Banking Institution as having a maturity comparable to the remaining term to maturity of the Series 2010B Bond being redeemed that would be used, at the time of selection and in accordance with customary financial practice, in pricing new issues of corporate debt securities of comparable maturity to the remaining term to maturity of the Series 2010B Bond being redeemed.

The term "Comparable Treasury Price" means, with respect to any date on which a Series 2010B Bond or portion thereof is being redeemed, either (i) the average of five Reference Treasury Dealer quotations for the date fixed for redemption, after excluding the highest and lowest such quotations, and (ii) if the Independent Banking Institution is unable to obtain five such quotations, the average of the quotations that are obtained. The quotations shall be the average, as determined by the Independent Banking Institution, of the bid and asked prices for the Comparable Treasury Issue (expressed in each case as a percentage of principal amounts) quoted in writing to the Independent Banking Institution, at 5:00 p.m. New York City time on the third Business Day preceding the date fixed for redemption.

The term "Comparable Treasury Yield" means the yield which represents the weekly average yield to maturity for the preceding week appearing in the most recently published statistical release designated "H.15(519) Selected Interest Rates" under the heading "Treasury Constant Maturities," or any successor publication selected by the Independent Banking Institution that is published weekly by the Board of Governors of the Federal Reserve System and that establishes yields on actively traded Treasury Department securities adjusted to constant maturity, for the maturity corresponding to the remaining term to maturity of the Series 2010B Bond being redeemed. The Comparable Treasury Yield shall be determined as of the third Business Day immediately preceding the applicable date fixed for redemption. If the H.15(519) statistical release sets forth a weekly average yield for Treasury Department securities that have a constant maturity that is the same as the remaining term to maturity of the Series 2010B Bond being redeemed, then the Comparable Treasury Yield shall be equal to such weekly average yield. In all other cases, the Comparable Treasury Yield shall be calculated by interpolation on a straight-line basis, between the weekly average yields on the Treasury Department securities that have a constant maturity (i) closest to and

17 greater than the remaining term to maturity of the Series 2010B Bond being redeemed; and (ii) closest to and less than the remaining term to maturity of the Series 2010B Bond being redeemed. Any weekly average yields calculated by interpolation shall be rounded to the nearest 1/100th of 1%, with any figure of 1/200th of 1% or above being rounded upward. If, and only if, weekly average yields for Treasury Department securities for the preceding week are not available in the H.15(519) statistical release or any successor publication, then the Comparable Treasury Yield shall be the rate of interest per annum equal to the semiannual equivalent yield to maturity of the Comparable Treasury Issue (expressed as a percentage of its principal amount) equal to the Comparable Treasury Price as of the date fixed for redemption.

The term "Extraordinary Event" means a determination by KMPA that KMPA is ineligible to receive the direct cash subsidy payment from the Treasury Department equal to 35% of the amount of interest paid on the Series 2010B Bonds as provided in Sections 54AA and 6431 of the Code as they exist on the date of issuance, which ineligibility is the result of (i) an amendment of Section 54AA or Section 6431 of the Code as such Sections exist on the date of issuance; (ii) the promulgation or publication of any regulation, procedure, rule or guidance by the Internal Revenue Service or the Treasury Department with respect to Section 54AA or Section 6431 of the Code; or(iii) any other determination by the Internal Revenue Service or the Treasury Department, which determination is not the result of any act or omission by KMPA.

The term "Independent Banking Institution" means an investment banking institution of national standing which is a primary United States government securities dealer in the United States designated by KMPA (which may be one of the Original Purchasers). If KMPA fails to appoint an Independent Banking Institution at least 45 days prior to the date fixed for redemption, or if the Independent Banking Institution appointed by KMPA is unwilling or unable to determine the Comparable Treasury Yield, the Comparable Treasury Yield shall be determined by an Independent Banking Institution designated by the Trustee.

The term "Original Purchaser" means the Underwriters of the Series 2010B Bonds.

The term "Reference Treasury Dealer" means a primary United States Government securities dealer in the United States appointed by KMPA and reasonably acceptable to the Independent Banking Institution (which may be the Original Purchaser). If KMPA fails to select the Reference Treasury Dealers within a reasonable period of time, the Trustee will select the Reference Treasury Dealers in consultation with KMPA.

Notwithstanding the foregoing, the Bonds shall be subject to redemption with funds at the option and direction of KMPA, as a whole or in part, at par plus accrued interest to the redemption date, on the 95th day after the date the Trustee receives written notice of the occurrence of any of the following events:

(a) the Project shall have been substantially damaged or destroyed to such extent that, in the opinion of KMPA filed with the Trustee, it is not practicable or economically feasible to rebuild, repair or restore the damaged property within a reasonable period of time and KMPA will be prevented from carrying out its normal operations for a period of at least six months, or

18 (b) a portion of the Project shall have been substantially damaged or destroyed to such extent that, in the opinion of KMPA filed with the Trustee, it is not practicable or economically feasible to rebuild, repair or restore that portion of the Project so damaged; provided, however, that the Bonds called for redemption pursuant to this subparagraph shall not be redeemed in whole but shall be redeemed in part with the amount of funds remaining from the receipt of any insurance proceeds, after the costs of any such rebuilds, repairs or restorations that in the opinion of KMPA filed with the Trustee, are determined to be economically feasible and shall have been made, or

(c) title to or the temporary use of all or substantially all of the Project (i) shall be taken under a valid and lawful exercise of the power of eminent domain or (ii) shall be denied by the failure of any license, permit or other form of approval to be issued by a governmental authority such as results, or is likely to result (in the reasonable opinion of KMPA), in KMPA being thereby prevented from (y) carrying out its normal operations at the Project for a period of at least six consecutive months or (z) selling power or energy generated by the Project at levels which in the opinion of KMPA and confirmed by an Independent Consultant, make all or a portion of the Project not economically feasible.

Mandatory Redemption. The Bonds are subject to mandatory redemption prior to maturity at a redemption price equal to the principal amount to be redeemed plus accrued interest thereon to the date of redemption, at any time, in whole or in part by lot, to the extent necessary in accordance with written instructions from Bond Counsel to effect compliance with the requirements of the Code.

The Series 2010B Bonds due September 1, 2037 shall be subject to mandatory sinking fund redemption prior to maturity (said Bonds to be selected in such manner as the Trustee may determine) at a redemption price of 100% of the principal amount thereof to be redeemed, plus interest accrued to the redemption date, on September 1 in the years and in the principal amounts as follows:

September 1 Principal Amount 2031 $ 8,945,000 2032 9,330,000 2033 9,730,000 2034 10,150,000 2035 10,590,000 2036 11,045,000 2037 11,250,000

Notice and Effect of Call for Redemption. The Trustee shall give notice of redemption by first class mail, postage prepaid, mailed not less than 25 nor more than 45 days prior to the

19 redemption date to each Owner of Bonds to be redeemed or tendered at the address of such Owner appearing in the Bond Register, and also to such other Persons as KMPA shall deem appropriate.

Neither the failure of any Owner to receive notice mailed as provided herein nor any defect in notice so mailed shall affect the validity of the proceedings for redemption or mandatory tender in accordance with the Indenture.

All notices of redemption tender shall state:

(i) the redemption date;

(ii) the redemption price (including premium, if any);

(iii) the name of the Bonds to be redeemed, the principal amount of Bonds to be redeemed, and, if less than all Outstanding Bonds are to be redeemed, the identification (and, in the case of partial redemption, the respective principal amounts) of the Bonds to be redeemed;

(iv) the reason for the redemption;

(v) that on the redemption date, the redemption price, as appropriate, of each such Bond will become due and payable, that interest on each such Bond shall cease to accrue on and after such date, and that each such Bond will be deemed to have been redeemed;

(vi) the place or places where such Bonds must be surrendered for payment of the redemption price thereof; and

(vii) such additional information as KMPA or the Trustee shall deem appropriate.

Notice of redemption having been given as aforesaid, the Bonds so to be redeemed shall become due and payable on the redemption date at the redemption price specified, and on and after such date (unless KMPA shall default in the payment of the redemption price) such Bonds shall cease to bear interest. Upon surrender of any such Bond for redemption in accordance with such notice, such Bond shall be paid at the redemption price thereof.

No Interest After Redemption Date. Notice of redemption having been given as provided in the Indenture, the Bonds or portions thereof designated for redemption shall become due and payable on the date fixed for redemption and, unless KMPA defaults in the payment of the principal thereof, such Bonds or portions thereof shall cease to bear interest from and after the date fixed for redemption whether or not such Bonds are presented and surrendered for payment on such date. If any Bond or portion thereof called for redemption is not so paid upon presentation and surrender thereof for redemption, such Bond or portion thereof shall continue to bear interest at the rate set forth thereon until paid or until due provision is made for the payment of same.

20 Parity Bonds

The Bonds shall not be entitled to priority one over the other in the application and pledge of the Revenues, regardless of the time or times of their issuance, it being the intention that there shall be no priority among the Bonds, regardless of the fact that they may be actually issued and delivered at different times, and provided further that the lien and security of and for any bonds or obligations hereafter issued that are payable from the Revenues of the Project shall, except as set out herein, be subject to the priority of the Bonds as may from time to time be outstanding; provided, KMPA hereby reserves the right and privilege of issuing (i) Completion Indebtedness and/or (ii) any additional bonds from time to time in order to pay the cost of acquiring, whether by purchase or construction of extensions, renovations, improvements and/or betterments to the Project, or for any other lawful purpose of KMPA (the "Parity Bonds"). When issued, any Parity Bonds shall be payable from the Revenues of the Project ranking on a parity with the Bonds. Parity Bonds, other than the Completion Indebtedness, may be issued by KMPA only upon compliance with the following conditions and restrictions:

(a) that before any Parity Bonds may be issued there shall have been procured and filed with the Secretary of KMPA a statement by an Independent Engineer, reciting the opinion, based upon necessary investigation, that on an annual basis the Debt Service Coverage Ratio based upon (i) the Net Revenues of the Issuer's Project share, including the then contemplated extensions, improvements, renovations and betterments throughout the life of the Bonds and (ii) the Maximum Annual Debt Service on the Outstanding Bonds and the Parity Bonds then proposed to be issued, will, from and after the fifth year after the Parity Bonds are issued, be equal to at least 1.20:1;

(b) that KMPA reserves the right, exercisable by supplemental indenture, to prescribe additional and more restrictive conditions for the issuance of such additional Parity Bonds, and upon issuance of Parity Bonds in compliance therewith such additional and more restrictive conditions shall be applicable to all such Parity Bonds as may thereafter be issued;

(c) at the time of issuance of such Parity Bonds, the supplemental indenture (and/or other appropriate document) of KMPA authorizing such Parity Bonds shall contain a provision requiring the funding, completion of the funding, or additional funding of the Reserve Fund with cash and/or a surety bond;

(d) that if the Parity Bonds are to bear interest at a fixed rate, the interest payment dates for any such additional Parity Bonds shall be semiannually on the same dates as the Outstanding Bonds; and

(e) that the principal maturities of such additional Parity Bonds shall be on an Interest Payment Date.

The Net Revenues of said contemplated extensions, improvements, renovations and betterments shall not be included as aforesaid, unless, at the time it is proposed to issue any such Parity

21 Bonds, either (i) a written contract or contracts shall have been entered into for the immediate acquisition of any such betterments, improvements, renovations or extensions to be acquired and for the construction of substantially all of any such extensions, improvements, renovations or betterments to be constructed through application of any of the proceeds of such additional Parity Bonds; or (ii) a certificate shall have been made and filed with the Secretary of KMPA by an Independent Engineer meeting the qualifications prescribed in the Indenture, stating that in his, her or their opinion certain described extensions, improvements, renovations, betterments or constructions are needed, that the nature thereof is such that construction can be accomplished more economically or more expeditiously by purchasing materials and utilizing labor or personnel employed directly by KMPA, and that the estimated costs thereof can be paid in full from the proceeds of the Parity Bonds proposed to be issued, as supplemented by any other funds then available.

The additional Parity Bonds and other obligations, the issuance of which is restricted by the Indenture, shall be understood to mean Parity Bonds and obligations payable from the Revenues of the Project on a parity with the Outstanding Bonds and shall not be deemed to include bonds or other obligations subsequently issued, the lien and security of which are subordinate and subject to the prior and superior lien and security of the Outstanding Bonds.

Nothing in the Indenture is intended or shall be construed as a restriction upon the ordinary refunding of any of the Bonds herein authorized and/or Outstanding Bonds, if such refunding does not operate to increase in any year the aggregate debt service requirements of the Outstanding Bonds proposed to be refunded.

BOND INSURANCE

The following information is not intended to be a complete description of the Municipal Bond Insurance Policy to be issued in connection with the Bonds. Reference is made to Appendix I for a specimen of the Municipal Bond Insurance Policy of Assured Guaranty Municipal Corp. (formerly known as Financial Security Assurance, Inc.).

Bond Insurance Policy

Concurrently with the issuance of the Bonds, Assured Guaranty Municipal Corp. ("AMG") will issue its Municipal Bond Insurance Policy for the Bonds (the "Policy"). The Policy guarantees the scheduled payment of principal of and interest on the Bonds when due as set forth in the form of the Policy included as Appendix I to this Official Statement.

The Policy is not covered by any insurance security or guaranty fund established under New York, California, Connecticut or Florida insurance law.

22 Assured Municipal Guaranty Corp. (formerly known as Financial Security Assurance, Inc.)

AGM is a New York domiciled financial guaranty insurance company and a wholly owned subsidiary of Assured Guaranty Municipal Holdings Inc. ("Holdings"). Holdings is an indirect subsidiary of Assured Guaranty Ltd. ("AGL"), a Bermuda-based holding company whose shares are publicly traded and are listed on the New York Stock Exchange under the symbol "AGO". AGL, through its operating subsidiaries, provides credit enhancement products to the U.S. and global public finance, infrastructure and structured finance markets. No shareholder of AGL, Holdings or AGM is liable for the obligations of AGM.

On July 1, 2009, AGL acquired the financial guaranty operations of Holdings from Dexia SA ("Dexia"). In connection with such acquisition, Holdings' financial products operations were separated from its financial guaranty operations and retained by Dexia. For more information regarding the acquisition by AGL of the financial guaranty operations of Holdings, see Item 1.01 of the Current Report on Form 8-K filed by AGL with the Securities and Exchange Commission (the "SEC") on July 8, 2009.

Effective November 9, 2009, Financial Security Assurance Inc. changed its name to Assured Guaranty Municipal Corp.

AGM's financial strength is rated "AAA" (negative outlook) by Standard and Poor's Ratings Services, a Standard & Poor's Financial Services LLC business ("S&P") and "Aa3" (negative outlook) by Moody's Investors Service, Inc. ("Moody's"). On February 24, 2010, Fitch, Inc. ("Fitch"), at the request of AGL, withdrew its "AA" (Negative Outlook) insurer financial strength rating of AGM at the then current rating level. Each rating of AGM should be evaluated independently. An explanation of the significance of the above ratings may be obtained from the applicable rating agency. The above ratings are not recommendations to buy, sell or hold any security, and such ratings are subject to revision or withdrawal at any time by the rating agencies, including withdrawal initiated at the request of AGM in its sole discretion. Any downward revision or withdrawal of any of the above ratings may have an adverse effect on the market price of any security guaranteed by AGM. AGM does not guarantee the market price of the securities it insures, nor does it guarantee that the ratings on such securities will not be revised or withdrawn.

Recent Developments - Ratings. On May 17, 2010, S&P published a Research Update in which it affirmed its "AAA" counterparty credit and financial strength ratings on AGM. At the same time, S&P continued its negative outlook on AGM. Reference is made to the Research Update, a copy of which is available at www.standardandpoors.com, for the complete text of S&P's comments.

In a press release dated February 24, 2010, Fitch announced that, at the request of AGL, it had withdrawn the "AA" (Negative Outlook) insurer financial strength rating of AGM at the then current rating level. Reference is made to the press release, a copy of which is available at www.fitchratings.com, for the complete text of Fitch's comments.

23 On December 18, 2009, Moody's issued a press release stating that it had affirmed the "Aa3" insurance financial strength rating of AGM, with a negative outlook. Reference is made to the press release, a copy of which is available at www.moodys.com, for the complete text of Moody's comments.

There can be no assurance as to any further ratings action that Moody's or S&P may take with respect to AGM.

For more information regarding AGM's financial strength ratings and the risks relating thereto, see AGL's Annual Report on Form 10-K for the fiscal year ended December 31, 2009, which was filed by AGL with the SEC on March 1, 2010, and AGL's Quarterly Report on Form 10- Q for the quarterly period ended March 31, 2010. Effective July 31, 2009, Holdings is no longer subject to the reporting requirements of the Securities and Exchange Act of 1934, as amended (the "Exchange Act").

Capitalization of AGM. At March 31, 2010, AGM's consolidated policyholders' surplus and contingency reserves were approximately $2,220,015,145 and its total net unearned premium reserve was approximately $2,228,912,193 in accordance with statutory accounting principles.

Incorporation of Certain Documents by Reference. Portions of the following documents filed by AGL with the SEC that relate to AGM are incorporated by reference into this Official Statement and shall be deemed to be a part hereof:

(i) The Annual Report on Form 10-K for the fiscal year ended December 31, 2009 (which was filed by AGL with the SEC on March 1, 2010); and

(ii) The Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2010.

All information relating to AGM included in, or as exhibits to, documents filed by AGL pursuant to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act after the filing of the last document referred to above and before the termination of the offering of the Bonds shall be deemed incorporated by reference into this Official Statement and to be a part hereof from the respective dates of filing such documents. Copies of materials incorporated by reference are available over the internet at the SEC's website at http://www.sec.gov, at AGL's website at http://www.assuredguaranty.com, or will be provided upon request to Assured Guaranty Municipal Corp. (formerly known as Financial Security Assurance Inc.): 31 West 52nd Street, New York, New York 10019, Attention: Communications Department (telephone (212) 826-0100).

Any information regarding AGM included herein under the caption "BOND INSURANCE – Assured Guaranty Municipal Corp. (formerly known as Financial Security Assurance Inc.)" or included in a document incorporated by reference herein (collectively, the "AGM Information") shall be modified or superseded to the extent that any subsequently included AGM Information (either directly or through incorporation by reference) modifies or supersedes such previously

24 included AGM Information. Any AGM Information so modified or superseded shall not constitute a part of this Official Statement, except as so modified or superseded.

AGM makes no representation regarding the Bonds or the advisability of investing in the Bonds. In addition, AGM has not independently verified, makes no representation regarding, and does not accept any responsibility for the accuracy or completeness of this Official Statement or any information or disclosure contained herein, or omitted herefrom, other than with respect to the accuracy of the information regarding AGM supplied by AGM and presented under the heading "BOND INSURANCE".

PRAIRIE STATE ENERGY CAMPUS PROJECT

General

On February 7, 2005, the KMPA Board of Directors approved participation in the construction and operation of the Prairie State Energy Campus Project. KMPA will use the output of the Project to provide the baseload portion of the power and energy needed by its Members. Upon financial closing, KMPA acquired a 7.82% undivided interest in the Project which is equivalent to approximately 124 MW.

The Project is a mine-mouth, pulverized coal-fired generating station under construction in Washington and Randolph Counties in southwest Illinois. The Project includes adjacent coal reserves and all associated mine, rail, water, coal combustion waste storage and ancillary support. The generating station will consist of two supercritical units with a nominal net output capacity of 800 MW each. The plant design incorporates state-of-the-art emissions control technology consistent with other plants that have been successfully permitted. The Project is being developed by Prairie State Generating Company ("PSGC"). PSGC originated as a wholly-owned subsidiary of Peabody Energy. Peabody Energy is the world's largest private-sector coal company, with 2008 sales of 256 million tons of coal and $6.6 billion in revenues.

Pursuant to an Amended and Restated Project Development Agreement, dated as of June 19, 2007 and certain similar and ancillary agreements (collectively the "Development Agreement"), PSGC sold undivided interests in the Project to KMPA; American Municipal Power, Inc. ("AMP"); the Northern Illinois Municipal Power Agency ("NIMPA"); the Illinois Municipal Power Agency ("IMEA"); the Indiana Municipal Power Agency ("IMPA"); Lively Grove Energy Partners, LLC, ("Lively Grove Energy"), currently a wholly-owned indirect subsidiary of Peabody Energy; the Missouri Joint Municipal Electric Commission ("MJMEUC"); Prairie Power, Inc., formerly Soyland Power Cooperative, Inc. ("PPI"); and Southern Illinois Power Cooperative ("SIPC") [collectively, the "Project Owners"]. The sale of the undivided interests, except the AMP undivided interest, occurred on October 1, 2007. The sale of the AMP undivided interest occurred in the first half of 2008. At the closings, the co-owners executed a Project Participation Agreement (the "Participation Agreement"). Peabody Energy has guaranteed the obligations of Lively Grove Energy under the Development Agreement, as well as certain obligations of PSGC under the Development Agreement.

25 The Participation Agreement governs the construction and operation of the Project. The Participation Agreement provides for the Project to be constructed and operated by one or more non- profit companies, which shall be owned by the Project Owners on a basis that is proportionate to their interests in the Project. On October 1, 2007, ownership of PSGC was transferred to Prairie State Management Company, an Indiana not-for-profit corporation of which the Project Owners are the members. All licenses, permits and regulatory approvals relating to the Project are held or controlled by PSGC.

Each Project Owner's percentage ownership interest in the Project is shown in the table below.

Ownership Owner Interest AMP 23.3% IMEA 15.2% IMPA 12.6% MJMEUC 12.3% PPI 8.2% SIPC 7.9% KMPA 7.8% NIMPA 7.6% Lively Grove Energy 5.1%

Total 100.0%

Paducah Electric and Princeton Electric are contractually obligated to purchase from KMPA 104 MW and 20 MW, respectively, of ownership entitlement from KMPA's share of 124 MW of the Project's contractual capability. The actual net electrical capacity of the Project will be determined upon completion of the two generating units, and KMPA will be entitled to 7.82 percent of that amount.

Lively Grove Energy will sell a significant portion of its interest in the Project either directly or through the execution of long-term power purchase agreements. Certain Project agreements require that Lively Grove Energy, or another affiliate of Peabody Energy, retain an aggregate undivided ownership interest of at least five percent, until at least the fifth anniversary of the Project's substantial completion date, unless such minimum ownership interest is waived by a majority of the non-Peabody affiliate owners or other conditions related to mine operations have been met. Peabody Energy has guaranteed the obligations of Lively Grove Energy under the Participation Agreement pursuant to Guarantees dated as of June 19, 2007.

26 Project Site

The site on which the Project is located, excluding the initial coal combustion waste ("CCW") disposal site, covers in excess of 4,500 acres either currently owned, under option for purchase, or planned to be purchased by PSGC. This total acreage includes approximately 2,100 acres for the electric generating portion of the Project (the "Generating Facility") and its buffer zone and primary access route, approximately 840 acres for a future CCW disposal site in closer proximity to the Generating Facility, approximately 700 acres for potential additional mine access facilities and associated buffer zones and corridors, and the remainder for land to provide the acreage necessary to support these facilities and provide adequate buffers, rights of way, and access to the Project's facilities.

Electric Generating Facility

The Generating Facility will consist of two supercritical coal-fired generating units with an expected nominal net capability of 800 MW each. The plant design incorporates state-of-the-art emissions control technology consistent with other plants that have been successfully permitted in the recent past.

The steam generators, or boilers, are Babcock and Wilcox Company supercritical, pulverized coal-fired, sliding pressure, balanced draft units with membrane furnace wall construction, superheaters, reheaters, and economizers, designed to accommodate the use of the Project coal reserves. Natural gas will be used for startup and flame stabilization. The steam generators will be designed to continuously deliver steam flow as required to produce a unit net output of approximately 800 MW each, and will deliver main steam at approximately 3,800 psia and 1,055°F at the superheater outlet, with reheat steam at approximately 1,055°F at the reheater outlet.

The steam turbine-generators were manufactured by Toshiba International Corporation, and have a nominal rated capacity of 900 MW at an exhaust pressure of 3.0 inches of mercury. Each steam turbine will be a 3,600 rpm, extraction condensing, reheat type unit using approximately 3,700 psi, 1,050 °F/1,053 °F throttle steam and eight stages of steam extraction for feedwater heating and feedwater pump supply. Each steam turbine is designed for continuous operation and will be located in an enclosed structure with a bridge crane within the enclosure. The electric generators will be rated at 1,020 kVa and will be direct-driven, two-pole, synchronous, 3,600 rpm, 60 Hz, primary hydrogen-cooled machines with secondary water cooling.

Steam exiting the turbines will be condensed by a two-shell, single pressure, water-cooled, surface condenser with stainless steel tubes. Circulating water from mechanical draft cooling towers will be used as cooling water. The circulating water system for each generating unit will include three 33-percent-capacity circulating water pumps, and one auxiliary 100-percent-capacity cooling water pump.

27 Fuel

The Generating Facility is located adjacent to underground coal reserves owned by the Project Owners that have been estimated by PSGC as sufficient to supply all the coal needs for the Project for approximately 30 years of full load operations, provided all planned reserves are accessible and able to be mined as planned by PSGC. The estimated quantity of coal contained in the dedicated coal reserves was confirmed by Skelly and Loy in an independent mine study commissioned by certain of the Project Owners dated August 2007, which was updated by Skelly and Loy in an addendum letter report, dated April 24, 2008, and in November 5, 2008 responses to inquiries made to Skelly and Loy. The Project Owners acquired their proportionate undivided interests in the coal reserves at their respective closings. There are also additional coal reserves adjacent to the Project that may be acquired in the future. Due to the proximity of the coal reserves to the Generating Facility, the Project will not rely on any outside source of transportation for fuel deliveries.

The Mine plan for the Project, developed and submitted by PSGC in 2007, includes a room and pillar design with a single portal for access to the underground reserves in the southeastern portion of those reserves (the "Mine Plan"). Plans for the addition of a second mine portal or other access facilities in the northern portion of the available coal reserves are being considered for a future date to provide additional manpower access and facilitate coal deliveries to the Generating Facility. PSGC would move forward to add a second mine portal or other access facilities if they are determined to be economically and operationally advantageous.

All permits required to construct and operate the Mine portal have been issued. Skelly and Loy indicated that the use of a single portal is considered standard or normal practice for existing and new Illinois Basin coal mines and should be adequate to supply the Project with sufficient fuel from the coal reserves.

At various times in 2008 and 2009, the Mine Safety and Health Administration ("MSHA"), the Federal entity responsible for the approval of the Mine Plan, as well as the Mine's ongoing construction and operational monitoring and compliance, required various modifications to the original Mine Plan submitted by PSGC in 2007. PSGC believes such modifications may not reflect sound, safe and efficient mining practices. After unsuccessful attempts at negotiation by PSGC, MSHA effectively imposed in August 2009 the use of a revised plan that included certain major modifications to underground mining techniques. PSGC accepted this revised plan in order to continue Mine development, but simultaneously objected to many of the mining revisions that would be imposed by the revised plan to support Project operations. Thereafter, on September 17, 2009, MSHA issued two citations. The citations were "technical" in nature as MSHA and PSGC agreed in advance that they were to be issued, and there is no immediate jeopardy to continued Mine development under the revised plan. Subsequently, PSGC entered into discussions with MHSA seeking a reasonable and amicable resolution to the differences in the two plans, which proved unsuccessful. The issuance of the citations allowed PSGC to pursue litigation through the administrative appeals process established by the Federal Mine Safety and Health Review Commission, the body responsible for the adjudication of disputes arising under the Federal Mine

28 Safety and Health Act of 1977, as amended. PSGC subsequently pursued litigation in an attempt to force a return to the mining techniques contained in the original Mine Plan, which PSGC believes are more appropriate for the Mine's specific characteristics. Hearings were held on February 9, 2010, and the Judge's decision is not expected until early summer of 2010.

If PSGC is unsuccessful in returning to the original Mine Plan, or at a minimum, a compromise plan which contains reasonable and supportable requirements that would allow efficient operations without compromising safety, PSGC reports that the projected capital costs of the Mine development and the annual per ton operating costs of the Mine would be higher than those assumed. Further, the amount of recoverable coal reserves available to the Project would be lower than originally expected and may not be sufficient to provide fuel for baseload operations for a full 30-year economic life of the Project. There are, however, additional coal reserves, adjacent to the existing Project coal reserves that could be acquired in the future.

The Project design includes rail access to accommodate certain amounts of coal purchases from third parties in the event of an extended mine disruption, as well as to facilitate the delivery of limestone and major pieces of equipment and for the disposal of CCW.

PSGC has signed a technical services agreement with Peabody Energy for Mine construction management oversight and a technical services agreement with Peabody Energy to support the Mine operation and maintenance. Peabody Energy operates other mines in the vicinity of the Project utilizing the same coal seam as the Project's coal reserves.

Coal will be delivered to the Generating Facility at a rate of 2,600 tons per hour ("tph") from the adjacent mine. The coal handling system will be sized to transport 24 hours worth of Design Coal from the mine storage to the Generating Facility storage pile in 10 hours. Reclaimed coal will be conveyed by the coal pile reclaim conveyor(s) at 2,600 tph to surge bins. Space has been allocated for an inactive coal storage pile that will accommodate approximately 60 days of full load operation under normal operational conditions, and an active coal storage pile that will accommodate approximately 10 days of full load operation under normal operational conditions.

Natural gas will be supplied through a new approximately 6-mile long pipeline, completed in December 2009, interconnecting the Generating Facility to the Ameren gas distribution system.

Air Quality Controls

Flue gas exiting the steam generator will pass through air quality control system ("AQCS") equipment designed and furnished by Siemens Power Generation, Inc. The Project is designed to meet best available air pollution control technology. The air pollution control technology consists of (i) low nitrous oxide ("NOx") burners; (ii) a selective catalytic reduction system for NOx control; (iii) an activated carbon injection system for mercury control; (iv) a hydrated lime injection system for hydrofluoric acid removal; (v) dry electrostatic precipitators for particulate control; (vi) wet flue

gas desulfurization systems ("FGD") for sulfur dioxide ("SO2") control; and (vii) wet ESPs for aerosol control. Similar individual emission control devices are operating in commercial

29 environments today. The Generating Facility design is intended to comply with all emissions regulations and permit conditions, including all state and federal regulations.

The Project is expected to have a carbon dioxide (CO2) emissions rate that is around 15 percent below those of existing coal plants of comparable capacity. The Project's design and grounds make it amenable to the addition of equipment and technology for the capture and/or further

reduction of CO2, if required by future regulations.

Water

Water for the Project will be supplied from the Kaskaskia River, with the withdrawal located approximately 15 miles west of the Project site. The Project's water withdrawal permit allows PSGC to withdraw up to 30 million gallons per day ("MGD") from the Kaskaskia River for a period extending through September 2042. The water withdrawal permit includes a withdrawal restriction that protects the Kaskaskia River during low flow conditions. If the river flow drops below certain levels, PSGC will either rely on water stored in an on-site raw water pond or purchase additional water pursuant to a water purchase agreement with the Illinois Department of Natural Resources ("IDNR"). The raw water pond has a 30-day storage capacity. The agreement with the IDNR is a 40-year agreement that allows PSGC to purchase water stored at the Carlyle and Shelbyville lakes in Illinois. If needed, water would be released into the Kaskaskia River and could be withdrawn by PSGC at a rate of up to approximately 15 MGD.

Coal Combustion Waste Disposal

CCW will consist of fly ash, bottom ash, FGD waste, and reject materials from the Mine breakers. All CCW generated by the Project will be transported via rail to the Jordan Grove Mine site, which is a new disposal site under development approximately nine miles southwest of the Generating Facility. The Jordan Grove Mine site is a closed surface mine that has partially depleted its reserves and contains approximately 1,060 acres. All permits necessary for cell development and construction have been issued.

The Jordan Grove Mine site has a permitted disposal life of 23 years for the total CCW expected to be generated by the Project. The site is currently owned by an affiliate of Peabody Energy, and the Project Owners have exercised an option to purchase the land needed for the Jordan Grove Mine site. The land and disposal facilities at the Jordan Grove Mine site are expected by PSGC to be conveyed to the Project Owners before the production of CCW from the Project.

PSGC has begun construction of the initial disposal cells at the Jordan Grove Mine site. Based on assumed CCW and surface characteristics, initial cell design activities revealed certain disposal height limitations and unforeseen site conditions and obstructions that will reduce the expected available disposal life of the Jordan Grove Mine site without additional capital expenditures to remediate these conditions. As of the date of this Report, PSGC estimates that the initial development plan for the Jordan Grove Mine site will likely result in approximately 12 to 14 years of CCW disposal capability, which is less than the permitted disposal life.

30 PSGC will continue to review remediation strategies to extend the disposal capability of the Jordan Grove Mine site further, and consistent with its CCW Plan approved in January 2007, is evaluating an additional CCW disposal site for future use that would be located closer to the Generating Facility and would presumably be capable of disposing of all CCW generated by the Generating Facility for a minimum of 30 years beyond the period of disposal at the Jordan Grove Mine site. PSGC projects that the development of such additional disposal facility could result in annual savings on CCW disposal costs of approximately 40 to 50 percent compared to the current annual CCW disposal estimate at the Jordan Grove Mine site, but may deplete the recoverable coal reserves available to the Project by one to two years of expected use. No permitting activities for such an additional disposal option have begun.

PSGC has engaged Headwaters Resources, Inc. to develop and operate the Jordan Grove Mine site CCW disposal facility at the direction of PSGC for at least the near term period of Project operations.

EPC Contractor

On October 14, 2006, PSGC and Bechtel Power Corporation ("Bechtel") signed an exclusive Letter of Intent ("LOI") under which Bechtel defined the scope and technical requirements of the Project and the parties established the terms and conditions for negotiation of a Target Price Engineering, Procurement and Construction contract (the "TPEPC Contract"). Bechtel also specified, bid, evaluated and developed purchase orders for the award of the boiler, steam turbine, air quality control system and certain balance of plant equipment. PSGC and Bechtel signed the TPEPC Contract on June 19, 2007 and PSGC simultaneously issued a Limited Notice to Proceed ("LNTP") to Bechtel.

Bechtel is a global engineering, construction and project management company with more than a century of experience on complex projects in challenging locations. Bechtel is a privately owned company with headquarters in San Francisco, 40 offices around the world and nearly 40,000 employees. The company had revenues of $20.5 billion in 2006. Bechtel has constructed or is in the process of constructing several thousand megawatts of coal fired generating facilities. The TPEPC Contract requires Bechtel to manage the construction of the generating station to a target price and schedule. The target price and schedule may be adjusted pursuant to the terms of the TPEPC Contract. The TPECP Contract includes incentives for early completion and an all-in cost that is below the target price as well as liquidated damages in the event the generating facility portion of the Project is substantially delayed or the target price plus a negotiated band is exceeded. Full Notice to Proceed ("FNTP") was issued in October of 2007.

PSGC has awarded a number of contracts with various equipment vendors for the supply of the steam generators, AQCS equipment and steam turbine generators. The purchase orders include guaranteed dates for major milestones, guaranteed performance criteria and liquidated damages for failure to meet the completion and performance guarantees. The major equipment vendors include, Toshiba International Corporation for the turbine generator; Siemens Power Generation, Inc. for the

31 air quality control equipment; and Babcock and Wilcox Company for the steam generator. Bechtel administers all of the contracts on behalf of PSGC.

Permits

PSGC has identified the key permits and approvals required from various federal, state, and local agencies necessary to construct and operate the Project. PSGC has obtained all of the permits required for construction of the Project. Certain of the permits and approvals that will be required for operation have not yet been obtained and certain of the permits/approvals will require renewal. PSGC has advised the Project Owners that (i) it will apply for needed permits and approvals and for renewal of expired permits and approvals when required and (ii) it expects that all permits and approvals will be timely received.

Electrical Interconnection

The Project's Generating Facility will be directly interconnected to Midwest Independent System Operator ("MISO") regional transmission grid through four new 345-kV electrical interconnections to the Ameren/IP system. The Generating Facility will be connected through 27- kV to 345-kV generator step-up transformers to a new Project switchyard, which will be connected to a new Ameren Services Company ("Ameren") switchyard (the "Ameren Switchyard") via 345-kV overhead tie lines. Pursuant to studies conducted by MISO, network upgrades to the regional transmission system are required beyond the Ameren Switchyard to accommodate the interconnection of the Project.

The construction of the Ameren Switchyard and all necessary transmission upgrades are being undertaken by Ameren pursuant to the terms of a Large Generator Interconnection Agreement (the "LGIA") and a Facilities Construction Agreement ("FCA") that were originally entered into among PSGC, MISO, and Ameren to facilitate PSGC's original 1,500 MW interconnection request for the Project. Subsequently, PSGC requested an increase in the capacity to be interconnected to the MISO system (from 1,500 MW to 1,650 MW), and MISO undertook the necessary studies to determine the impact of interconnecting an additional 150 MW and subsequently approved the request subject to certain minor modifications to the required network upgrades.

The Ameren Switchyard has been completed and placed into operation. A Certificate of Convenience and Necessity for construction of the transmission upgrades was granted to Ameren by the State of Illinois in May 2007. As of the end of February 2010, all of the permits and easements needed by Ameren to complete construction of the transmission upgrades have been obtained. The transmission upgrades are expected to be completed by October 2010, which supports the targeted commercial operation date of September 2011 for Unit 1 of the Generating Facility.

Plant Operation and Maintenance

In accordance with the Participation Agreement, PSGC is responsible for managing the construction and operation of the Project. As of the end of March 2010, PSGC had filled a total of

32 112 permanent staff positions, including PSGC's key management positions of President and Chief Executive Officer, Senior Vice President - Power Block, Senior Vice President of Power Operations, Vice President of Generation, Vice President - Mining, Director of Finance and Administration, and Director of Human Resources.

PSGC takes direction from the Management Committee, which was established by the Project Owners pursuant to the Participation Agreement. The Project Owners have delegated authority to the Management Committee for overall direction and oversight of all activities, budgets, contracts, financial arrangements, staffing and other functions relating to the Project. The Management Committee is comprised of one representative of each Project Owner, with pro-rata voting based on the respective ownership interest of each Project Owner. The officers of the Management Committee include Chairman, Vice Chairman, Secretary, and Treasurer.

Construction Status

Construction on the Project began in October, 2007. As of the end of April 2010, PSGC reported that, for activities related solely to the TPEPC Contract, engineering efforts are approximately 92 percent complete, construction activities are approximately 43 percent complete, and overall efforts are approximately 45 percent complete. Engineering efforts are on schedule, and the overall construction and project completion are behind the target schedule by approximately 3 percent.

Unit 1 of the Project was targeted by PSGC to be substantially complete, as per the TPEPC Contract, by August 1, 2011, and Unit 2 of the Project is targeted by PSGC to be substantially complete by May 1, 2012. Bechtel currently reports that they expect Unit 1 to be delayed up to three months, but that Unit 2 is on schedule, although opportunities may exist and are being pursued to return to the original schedule for completion of Unit 1. The primary reasons Bechtel cites for the delays are abnormal rainfall experienced during two months in 2008 and 2009, and issues related to the erection of the Unit 1 boiler encountered in mid and late 2009 and early 2010.

Project Budget and Projected Energy Cost

The estimated total cost for the Project is approximately $4.661 billion. This number includes the TPEPC costs, the cost for the developing the mine, transmission upgrades, coal reserves and land acquisition, project management, construction management and other costs. KMPA estimates its share of the cost, including finance charges will be approximately $531.679 million.

Future Capital Expenditures

KMPA anticipates that it will be assessed, from time to time, for its share of future capital expenditures, renovations and improvements for the Project. The projected capital expenditures are expected to be of a normal recurring nature. Although KMPA will be setting aside revenues to provide for the payment of such capital expenditures, renovations and improvements, sufficient funds may not be available. Thus, at the present time, KMPA anticipates funding most or all of any

33 capital expenditures, renovations and improvements to the Project through the issuance of Parity Bonds.

PLAN OF FINANCING

General

The proceeds of the Bonds are to be used to (i) finance the completion of the acquisition, construction, development and equipping of KMPA's undivided interest in the Project; (ii) fund interest during construction; (iii) fund a debt service reserve; (iv) provide working capital for KMPA; and (v) pay the costs of issuance of the Bonds.

Sources and Uses

The following is a summary of the sources of funds, and the uses of such funds in connection with the plan of financing:

Sources of Funds:

Principal amount of the Bonds $183,730,000 Reoffering premium 1,817,632 Other funds 3,031,055

Total Sources of Funds $188,578,687

Uses of Funds:

Project and related costs $170,283,914 Reserve Fund 11,539,832 Operating Fund 2,873,298 Underwriters' Discount 979,583 Bond Insurance Premium 1,872,869 Costs of Issuance 1,029,191

Total Uses of Funds $188,578,687

CERTAIN RISKS ASSOCIATED WITH THE BONDS

The following is a discussion of certain risks that could affect payments to be made with respect to the Bonds. Such discussion is not, and is not intended to be, exhaustive and should be read in conjunction with all other parts of this Official Statement and should not be considered as a complete description of all risks that could affect such payments. Prospective purchasers of the Bonds should analyze carefully the information contained in this Official Statement, including the

34 Appendices hereto, and additional information in the form of the complete documents summarized herein and in Appendix H, copies of which are available as described herein.

1. Security for the Bonds. The Bonds are limited obligations of KMPA payable exclusively out of the revenues received by KMPA under the Power Sales Agreements and, in certain circumstances, Bond proceeds and income from the temporary investment thereof. The Bonds are secured by a pledge by KMPA of the Trust Estate to the Trustee in favor of the Bondowners in accordance with the Indenture. A brief description of the Trust Estate is contained in Appendix H.

2. Default under a Power Sales Agreement. No representation or assurance can be made that KMPA will receive the revenues under the Power Sales Agreements.

3. Limitation on Enforcement of Remedies. Enforcement of the remedies under the Indenture and any Power Sales Agreement may be limited or restricted by laws relating to bankruptcy and insolvency, and rights of creditors under application of general principles of equity, and may be substantially delayed in the event of litigation or statutory remedy procedures. All legal opinions delivered in connection with the Bonds relating to the enforceability contain an exception relating to the limitations which may be imposed by bankruptcy and insolvency laws, and the rights of creditors under general principles of equity.

4. Suitability of Investment. An investment in the Bonds involves a certain degree of risk. The interest rate borne by the Bonds is intended to compensate the investor for assuming this element of risk. Prospective investors should carefully examine this Official Statement, including the Appendices hereto, and assess their ability to bear the economic risk of such an investment and determine whether or not the Bonds are an appropriate investment for them.

5. Legislative and Regulatory Issues Affecting the Electric Utility Industry. The electric utility industry in general has become increasingly competitive and uncertain due to regulatory changes and wholesale and retail market developments. Electric utilities are subject to changing federal, state and local statutory and regulatory requirements of licensing and siting of facilities, safety and security, air and water quality, land use and environmental factors. Moreover, the industry is affected by public concerns regarding potential health effects from electric and magnetic fields associated with power lines, home appliances and other sources, and emissions and pollution caused by the burning of fossil fuels.

Various factors have a profound effect on the financial condition of electric utilities. These factors, among others, include: (a) effects of compliance with rapidly changing environmental, safety, licensing, regulatory and legislative requirements, (b) changes resulting from conservation and demand-side management programs, (c) changes resulting from a national energy policy, (d) effects of competition from other electric utilities and new methods of, and new facilities for, producing low-cost electricity, (e) the repeal of certain federal statutes that would have the effect of increasing the competition among utilities, (f) increased competition from independent power producers, marketers, and brokers, (g) "self-generation" by certain industrial and commercial

35 customers, (h) issues relating to the ability to issue tax-exempt debt, (i) effects of inflation on the operating and maintenance costs of an electric utility and its facilities, (j) changes in projected future load requirements, (k) increases in costs and uncertain availability of capital, (l) shifts in the availability and relative costs of different fuels (including the cost of natural gas), (m) fluctuations in the price of energy purchased on the open market, (n) inadequate risk management procedures and practices with respect to, among other things, the purchase and sale of energy and transmission capacity, (o) other legislative changes, voter initiatives, referenda and statewide propositions, (p) effects of the changes in the economy, (q) effects of possible manipulation of the electric markets, and (r) natural disasters or other physical calamity, including, but not limited to, earthquakes.

Any of these factors could have an effect on the financial condition of any electric utility, including KMPA and its Members. KMPA cannot predict the effect such factors will have on KMPA's business operation and financial condition, or the business operation and financial condition of its Members.

TAX MATTERS

Based upon certain covenants, representations and certifications of KMPA, which Bond Counsel has not independently verified, and assuming continuing compliance therewith, as set forth below, in the opinion of Bond Counsel interest on the Series 2010A Bonds is excludable from gross income for federal income tax purposes and is not an item of tax preference for purposes of the federal alternative tax on individuals and corporations under existing laws, regulations, rulings and decisions in effect on the date of delivery of the Bonds.

The Internal Revenue Code of 1986, as amended (the "Code"), requires that KMPA comply on an ongoing basis with certain obligations in order for the Series 2010A Bonds not to be used in such a manner that would cause the Series 2010A Bonds to be "arbitrage bonds" within the meaning of Section 148 of the Code and for the interest on the Series 2010A Bonds to be and remain excludable from gross income for federal income tax purposes. Failure to meet those obligations could result in the interest on the Series 2010A Bonds becoming subject to federal income taxation, retroactive to the date of the Series 2010A Bonds. KMPA has covenanted to comply with all such obligations.

Bond Counsel has not opined on any other federal income tax consequences arising for holders of the Series 2010A Bonds. Interest on the Series 2010A Bonds will be includable in effectively connected earnings and profits for purposes of computing the branch profits tax on certain foreign corporations doing business in the United States. In addition, the Code disallows certain federal income tax deductions of certain financial institutions and property and casualty insurance companies which acquire the Series 2010A Bonds.

Interest on the Series 2010B Bonds and the Series 2010C Bonds is included in gross income for federal income tax purposes.

36 Certain Federal Income Tax Consequences

The following is a discussion of certain federal tax matters under the Code. This discussion does not purport to deal with all aspects of federal taxation that may be relevant to particular Bondowners. Prospective Bondowners, particularly those who may be subject to special rules, are advised to consult their own tax advisor regarding potential consequences arising under the laws of any state or other taxing jurisdiction.

Financial Institutions. The Code denies banks, thrift institutions and other financial institutions a deduction for 100% of their interest expense allocable to tax-exempt obligations, such as the Series 2010A Bonds, acquired after August 7, 1986.

Borrowed Funds. The Code provides that interest paid on funds borrowed to purchase or carry tax-exempt obligations during a tax year is not deductible. In addition, under rules used by the Internal Revenue Service for determining when borrowed funds are considered used for the purposes of purchasing or when carrying particular assets, the purchase of obligations may be considered to have been made with borrowed funds even though the borrowed funds are not directly traceable to the purchases of such obligations.

Property and Casualty Insurance Companies. The deduction for loss reserves for property and casualty insurance companies is reduced by 15% of the sum of certain items, including the interest received on tax-exempt bonds, such as the Series 2010A Bonds.

Social Security and Railroad Retirement Benefits. The Code also requires recipients of certain Social Security or Railroad Retirement benefits to take into account, in determining gross income, receipts or accruals of interest that is exempt from federal income tax.

Branch Profits Tax. Certain foreign corporations doing business in the United States may be subject to a branch profits tax on their effectively connected earnings and profits, including tax- exempt interest on obligations such as the Series 2010A Bonds.

S Corporations. Certain S corporations that have subchapter C earnings and profits at the close of a taxable year and gross receipts more than 25% of which are passive investment income, which includes interest on tax-exempt obligations, such as the Series 2010A Bonds, may be subject to a tax on excess net passive income.

Kentucky Tax Exemption

Kentucky, like many other states, generally taxes interest on obligations of governmental entities in other states. Under present law, the Bonds are exempt from ad valorem taxation and interest thereon is exempt from income taxation by the Commonwealth of Kentucky and any political subdivisions thereof.

37 Prior to any purchase of the Bonds, prospective purchasers of the Bonds are advised to consult their own tax advisors as to the impact of the Code upon their acquisition, holding or disposition of the Bonds.

Original Issue Discount

The Bonds having a yield that is higher than the interest rate (as shown on the cover page hereof) are being offered and sold to the public at an original issue discount ("OID") from the amounts payable at maturity thereon (the "Discount Bonds"). OID is the excess of the stated redemption price of a bond at maturity (the face amount) over the "issue price" of such bond. The issue price is the initial offering price to the public (other than to bond houses, brokers or similar persons acting in the capacity of underwriters or wholesalers) at which a substantial amount of bonds of the same maturity are sold pursuant to that initial offering. For federal income tax purposes, OID on each bond will accrue over the term of the bond, and for the Discount Bonds, the amount of accretion will be based on a single rate of interest, compounded semiannually (the "yield to maturity"). The amount of OID that accrues during each semi-annual period will do so ratably over that period on a daily basis. With respect to an initial purchaser of a Discount Bond at its issue price, the portion of OID that accrues during the period that such purchaser owns the Discount Bond is added to such purchaser's tax basis for purposes of determining gain or loss at the maturity, redemption, sale or other disposition of that Discount Bond and thus, in practical effect, is treated as stated interest.

Original Issue Premium

Certain of the Bonds (the "Premium Bonds") may be offered and sold to the public at a price in excess of their stated redemption price (the principal amount) at maturity. If a U.S. owner purchases a Premium Bond, that owner will be considered to have purchased such a Premium Bond with "amortizable bond premium" equal in amount to such excess. The U.S. owner may elect, in accordance with the applicable provisions of Section 171 of the Code, to amortize that premium as an offset to the interest payments on the Premium Bond using a constant yield to maturity method over the remaining term of the Premium Bond (or, if required by applicable Treasury Regulations, to an earlier call date). Pursuant to Section 67(b)(11) of the Code, the amortization of that premium is not considered a miscellaneous itemized deduction. Any amortization of bond premium will reduce the basis of the Premium Bond pursuant to Section 1016(a)(5) of the Code.

Owners of Discount or Premium Bonds (or book entry interests in them) should consult their own tax advisers as to the determination for federal tax purposes of the amount of OID or amortizable bond premium properly accruable in any period with respect to the Discount or Premium Bonds and as to other federal tax consequences and the treatment of OID and amortizable bond premium for purposes of state or local taxes on (or based on) income.

38 Backup Withholding

General information reporting requirements will apply to payments of principal and interest made on a Bond and the proceeds of the sale of a Bond to non-corporate holders of the Bonds, and "backup withholding" at a rate of 28% will apply to such payments if the owner fails to provide an accurate taxpayer identification number in the manner required or fails to report all interest required to be shown on its federal income tax returns. A beneficial owner of a Bond that is a U.S. owner can obtain complete exemption from backup withholding by providing a properly completed IRS Form W-9 (Request for Taxpayer Identification Number and Certification).

Nonresident Owners

Under the Code, interest and OID on any Bond whose beneficial owner is a nonresident alien, foreign corporation or other non-United States person ("Nonresident") are generally not subject to United States income tax or withholding tax (including backup withholding) if the Nonresident provides the payor of interest on the Bonds with an appropriate statement as to its status as a Nonresident. This statement can be made on IRS Form W-8BEN or a successor form. If, however, the Nonresident conducts a trade or business in the United States and the interest or OID on the Bonds held by the Nonresident is effectively connected with such trade or business, that interest or OID will be subject to United States income tax but will generally not be subject to United States withholding tax (including backup withholding).

Circular 230

THE FOREGOING DISCUSSION OF TAX MATTERS WAS NOT INTENDED OR WRITTEN BY BOND COUNSEL TO BE USED, AND IT CANNOT BE USED, FOR THE PURPOSE OF AVOIDING PENALTIES THAT MAY BE IMPOSED ON AN OWNER OF THE BONDS. THE FOREGOING DISCUSSION OF TAX MATTERS WAS WRITTEN TO SUPPORT THE PROMOTION OR MARKETING OF THE BONDS. EACH PROSPECTIVE OWNER OF THE BONDS SHOULD SEEK ADVICE BASED ON THE PROSPECTIVE OWNER’S PARTICULAR CIRCUMSTANCES FROM AN INDEPENDENT TAX ADVISOR.

LEGAL MATTERS

Legal matters incident to the authorization, issuance and sale and delivery of the Bonds are subject to the approving opinion of Rubin & Hays, Louisville, Kentucky, Bond Counsel. The proposed form of the approving opinion of Bond Counsel is set forth in Appendix J. In addition Bond Counsel intends to render an opinion regarding the Power Sales Agreements in the proposed form set forth in Appendix K. Certain legal matters will be passed upon for KMPA by its counsel, McMurry & Livingston, PLLC, Paducah, Kentucky and B. Todd Wetzel, Esq., Princeton, Kentucky and for the Underwriter by its counsel, Rubin & Hays, Louisville, Kentucky.

39 LITIGATION

No litigation is pending or, to the knowledge of KMPA, threatened in any court (i) to restrain or enjoin the issuance or delivery of the Bonds, or the collection of revenues pledged or to be pledged to pay the principal of and interest on the Bonds or (ii) in any way contesting or affecting the validity of the Bonds, the Indenture or the Power Sales Agreements, or the power to collect and pledge the revenues to pay the Bonds, or contesting the power or authority of KMPA to issue the Bonds.

KMPA will deliver a certificate at closing to the effect that there is no action, suit or proceedings known to be pending or threatened restraining or enjoining the execution or delivery of the Bonds or the Indenture or in any way contesting or affecting the validity of the foregoing.

DISCLOSURE COMPLIANCE

In accordance with the requirements of Rule 15c2-12 (the "Rule") promulgated by the Securities and Exchange Commission (the "SEC"), KMPA has agreed to provide or cause to be provided through a designated agent (the "Agent"), in a timely manner, to the Electronic Municipal Market Access system ("EMMA") at http://www.emma.msrb.org, notice of the occurrence of any of the following events with respect to the Bonds, if such event is material:

(a) principal and interest payment delinquencies; (b) non-payment related defaults; (c) unscheduled draws on debt service reserves reflecting financial difficulties; (d) unscheduled draws on credit enhancements reflecting financial difficulties; (e) substitution of credit or liquidity providers, or their failure to perform; (f) adverse tax opinion or events affecting the tax-exempt status of the Bonds; (g) modifications to rights of the Bondholders; (h) Bond calls; (i) defeasances; (j) release, substitution or sale of property securing repayment of the Bonds; and/or (k) rating changes.

KMPA may from time to time choose to provide notice of the occurrence of certain other events, in addition to those listed above, if KMPA determines that such other event is material with respect to the Bonds, but KMPA does not undertake to commit to provide any such notice of the occurrence of any material event except those events listed above.

KMPA also agrees to provide to EMMA in accordance with the Rule, its Annual Financial Report (the "Annual Report") which contains certain annual financial data of the Project and its participants. The financial data shall be available on or before 180 days after the end of each Fiscal Year (June 30), beginning with the Fiscal Year ending June 30, 2010.

40 If KMPA is unable to provide to EMMA an Annual Report by the date required in the Indenture, then KMPA shall send a notice to EMMA notifying it of the inability, at that time, to file the Annual Report.

If KMPA's fiscal year changes, then KMPA shall send a notice of such change to EMMA. If such change will result in KMPA's fiscal year ending on a date later than the ending date prior to such change, KMPA shall provide notice of such change to EMMA on or prior to the deadline for filing the Annual Report in effect when KMPA operated under its prior fiscal year. Such notice may be provided to EMMA along with the Annual Report, provided that it is filed at or prior to the deadline described above.

As of the execution of the Indenture, KMPA is and shall be in compliance with the reporting requirements of the Rule for all undertakings for which they are an "obligated person" as defined in the Rule.

Financial information regarding KMPA can be obtained from the Chief Financial Officer of KMPA, 1500 Broadway, Paducah, Kentucky 42001.

The obligations of KMPA described above will remain in effect only for such period that (i) the Bonds are outstanding in accordance with their terms and (ii) KMPA remains an "obligated person" with respect to the Bonds within the meaning of the Rule. KMPA reserves the right to terminate its obligation to provide notices of material events, as set forth above, if and when KMPA no longer remains an "obligated person" with respect to the Bonds within the meaning of the Rule. KMPA acknowledges that its undertaking pursuant to the Rule described under this heading is intended to be for the benefit of the Bondholders (including holders of beneficial interests in the Bonds).

The requirements for disclosure, provided in the Continuing Disclosure Certificate (the "Disclosure Certificate"), may be amended, if KMPA receives an opinion of independent legal counsel to the effect that:

(i) such amendment is made in connection with a change in circumstances that arises from a change in legal requirements, a change in law or a change in the types of activities in which KMPA is engaged;

(ii) the amendment would have complied with the requirements of the Rule at the time of the primary offering of the Bonds, after taking into account any amendments or interpretations of the Rule, as well as any change in circumstances; and

(iii) such amendment does not materially impair the interests of the Bondholders.

In the event of a failure of KMPA to comply with the disclosure requirements set forth in the Disclosure Certificate, any Bondholder may take such actions as may be necessary and appropriate, including seeking mandamus or specific performance by court order, to cause KMPA to comply

41 with its obligations under the Disclosure Certificate. A default in compliance with the disclosure requirements under the Disclosure Certificate shall not be deemed an Event of Default under the Indenture, and the sole remedy under the Disclosure Certificate in the event of any failure of KMPA to comply with the disclosure requirements shall be an action to compel performance.

RATINGS

The Bonds are expected to be assigned a rating of "Aa3" (negative outlook) by Moody's Investors Service ("Moody's) and "AAA" (negative outlook) by Standard & Poor's Rating Group ("Standard & Poor's") based upon the insurance commitment secured from Assured Guaranty Municipal Corp. (formerly known as Financial Security Assurance Inc.). In addition, Moody's has assigned the rating of "A3" and Standard & Poor's has assigned the rating of "A-" to the Bonds based upon the underlying credit of the Issuer in the proposed Project. This rating reflects only the views of Moody's and Standard & Poor's, respectively, and any explanation of the significance of this rating must be obtained from Moody's and Standard & Poor's. There is no assurance that this rating will continue for any given period of time or that it will not be revised or withdrawn entirely if, in the judgment of Moody's and Standard & Poor's, as the case may be, circumstances so warrant. Bondowners or prospective Bondowners should contact the Underwriter for information on the then current ratings, if any, on the Bonds.

INDEPENDENT AUDITORS

The financial statements of KMPA, as of and for the years ended June 30, 2009 and 2008, included in this Official Statement in Appendix C have been audited by Baker Tilly Virchow Krause LLP, independent auditors, as stated in their report appearing herein.

UNDERWRITING

The Underwriters have jointly and severally agreed, subject to certain conditions, to purchase all, but not less than all, of the Bonds from KMPA at a purchase price equal to (i) $55,131,855.61 for the Series 2010A Bonds, which represents the aggregate principal amount of the Series 2010A Bonds, plus the original issue premium, less original issue discount, less the Underwriter’s discount; (ii) $121,752,380.42 for the Series 2010B Bonds, which represents the aggregate principal amount of the Series 2010B Bonds, less the Underwriter’s discount; and (iii) $7,683,813.07 for the Series 2010C Bonds, which represents the aggregate principal amount of the Series 2010C Bonds, plus the original issue premium, less original issue discount, less the Underwriter’s discount. The Underwriters are committed to purchase all of the Bonds if any are purchased. The initial public offering prices may be changed from time to time by the Underwriters.

Wells Fargo Securities is the trade name for the capital markets and investment banking services of Wells Fargo & Company and its subsidiaries, including Wells Fargo Bank, National Association.

42 MISCELLANEOUS

The references herein to the Act, the Indenture, as supplemented and amended, and the Power Sales Agreements are brief outlines of certain provisions thereof and do not purport to be complete. For full and complete statements of the provisions thereof, reference is made to the Act, the Indenture, as supplemented and amended, and the Power Sales Agreements. Copies of such documents are on file at the offices of the Underwriter and at the office of the Trustee.

The agreement of KMPA with the Bondowners is fully set forth in the Indenture, and neither any advertisement of the Bonds nor this Official Statement is to be construed as constituting an agreement with the purchaser of the Bonds. Statements made in this Official Statement involving estimates, projections or matters of opinion, whether or not expressly so stated, are intended merely as such and not as representations of act.

The Cover Page hereof and the Appendices hereto are integral parts of this Official Statement and must be read together with all of the foregoing statements.

KENTUCKY MUNICIPAL POWER AGENCY

By /s/ Ray McLennan Chairman Attest:

By /s/ David R. Clark Secretary

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APPENDIX A

KENTUCKY MUNICIPAL POWER AGENCY POWER SYSTEM REVENUE BONDS, SERIES 2010

Engineering Report and Feasibility Study for the Prairie State Project Relating to the Kentucky Municipal Power Agency and its Members (See Appendix A-1 of the report for projected debt service coverage levels)

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APPENDIX B

KENTUCKY MUNICIPAL POWER AGENCY POWER SYSTEM REVENUE BONDS, SERIES 2010

Annual Long-Term Debt Service Requirements of the Kentucky Municipal Power Agency and Long-Term Debt Outstanding and Summary of Financial Statements

[This Page Intentionally Left Blank] Kentucky Municipal Power Agency Power System Revenue Bonds (Prairie State Project), Series 2010 SEMI-ANNUAL LONG-TERM DEBT SERVICE REQUIREMENTS

Build America Bonds Tax-Exempt Bonds Taxable Bonds Date Principal Interest Gross P+I Less: 35% Direct Pay Capitalized Interest(1) Total P+I Principal Interest Capitalized Interest(1) Total P+I Principal Interest Capitalized Interest(1) Total P+I

9/01/2010 - $2,026,876.31 $2,026,876.31 ($709,406.70) ($1,317,469.61) - - $548,738.71 ($548,738.71) - - $79,646.98 ($79,646.98) - 3/01/2011 - 3,881,252.50 3,881,252.50 (1,358,438.37) (2,522,814.13) - - 1,050,776.25 (1,050,776.25) - - 152,515.50 (152,515.50) - 9/01/2011 - 3,881,252.50 3,881,252.50 (1,358,438.37) (2,522,814.13) - - 1,050,776.25 (1,050,776.25) - - 152,515.50 (152,515.50) - 3/01/2012 - 3,881,252.50 3,881,252.50 (1,358,438.37) (2,522,814.13) - - 1,050,776.25 (1,050,776.25) - - 152,515.50 (152,515.50) - 9/01/2012 - 3,881,252.50 3,881,252.50 (1,358,438.37) (2,522,814.13) - - 1,050,776.25 (1,050,776.25) - - 152,515.50 (152,515.50) - 3/01/2013 - 3,881,252.50 3,881,252.50 (1,358,438.37) - $2,522,814.13 - 1,050,776.25 - $1,050,776.25 - 152,515.50 - $152,515.50 9/01/2013 - 3,881,252.50 3,881,252.50 (1,358,438.37) - 2,522,814.13 $3,365,000.00 1,050,776.25 - 4,415,776.25 $990,000.00 152,515.50 - 1,142,515.50 3/01/2014 - 3,881,252.50 3,881,252.50 (1,358,438.37) - 2,522,814.13 - 1,017,126.25 - 1,017,126.25 - 140,289.00 - 140,289.00 9/01/2014 - 3,881,252.50 3,881,252.50 (1,358,438.37) - 2,522,814.13 3,440,000.00 1,017,126.25 - 4,457,126.25 1,010,000.00 140,289.00 - 1,150,289.00 3/01/2015 - 3,881,252.50 3,881,252.50 (1,358,438.37) - 2,522,814.13 - 981,006.25 - 981,006.25 - 125,038.00 - 125,038.00 9/01/2015 - 3,881,252.50 3,881,252.50 (1,358,438.37) - 2,522,814.13 3,535,000.00 981,006.25 - 4,516,006.25 1,050,000.00 125,038.00 - 1,175,038.00 3/01/2016 - 3,881,252.50 3,881,252.50 (1,358,438.37) - 2,522,814.13 - 913,081.25 - 913,081.25 - 107,030.50 - 107,030.50 9/01/2016 - 3,881,252.50 3,881,252.50 (1,358,438.37) - 2,522,814.13 5,290,000.00 913,081.25 - 6,203,081.25 1,090,000.00 107,030.50 - 1,197,030.50 3/01/2017 - 3,881,252.50 3,881,252.50 (1,358,438.37) - 2,522,814.13 - 825,006.25 - 825,006.25 - 85,339.50 - 85,339.50 9/01/2017 - 3,881,252.50 3,881,252.50 (1,358,438.37) - 2,522,814.13 3,835,000.00 825,006.25 - 4,660,006.25 1,140,000.00 85,339.50 - 1,225,339.50 3/01/2018 - 3,881,252.50 3,881,252.50 (1,358,438.37) - 2,522,814.13 - 765,618.75 - 765,618.75 - 60,430.50 - 60,430.50 9/01/2018 - 3,881,252.50 3,881,252.50 (1,358,438.37) - 2,522,814.13 3,955,000.00 765,618.75 - 4,720,618.75 1,190,000.00 60,430.50 - 1,250,430.50 3/01/2019 - 3,881,252.50 3,881,252.50 (1,358,438.37) - 2,522,814.13 - 700,956.25 - 700,956.25 - 31,751.50 - 31,751.50 9/01/2019 - 3,881,252.50 3,881,252.50 (1,358,438.37) - 2,522,814.13 4,095,000.00 700,956.25 - 4,795,956.25 1,255,000.00 31,751.50 - 1,286,751.50 3/01/2020 - 3,881,252.50 3,881,252.50 (1,358,438.37) - 2,522,814.13 - 628,075.00 - 628,075.00 - - - - 9/01/2020 - 3,881,252.50 3,881,252.50 (1,358,438.37) - 2,522,814.13 5,585,000.00 628,075.00 - 6,213,075.00 - - - - 3/01/2021 - 3,881,252.50 3,881,252.50 (1,358,438.37) - 2,522,814.13 - 497,375.00 - 497,375.00 - - - - 9/01/2021 - 3,881,252.50 3,881,252.50 (1,358,438.37) - 2,522,814.13 5,860,000.00 497,375.00 - 6,357,375.00 - - - - 3/01/2022 - 3,881,252.50 3,881,252.50 (1,358,438.37) - 2,522,814.13 - 350,875.00 - 350,875.00 - - - - 9/01/2022 - 3,881,252.50 3,881,252.50 (1,358,438.37) - 2,522,814.13 6,160,000.00 350,875.00 - 6,510,875.00 - - - - 3/01/2023 - 3,881,252.50 3,881,252.50 (1,358,438.37) - 2,522,814.13 - 196,875.00 - 196,875.00 - - - - 9/01/2023 $1,015,000.00 3,881,252.50 4,896,252.50 (1,358,438.37) - 3,537,814.13 5,455,000.00 196,875.00 - 5,651,875.00 - - - - 3/01/2024 - 3,853,035.50 3,853,035.50 (1,348,562.42) - 2,504,473.08 - 60,500.00 - 60,500.00 - - - - 9/01/2024 3,730,000.00 3,853,035.50 7,583,035.50 (1,348,562.42) - 6,234,473.08 3,025,000.00 60,500.00 - 3,085,500.00 - - - - 3/01/2025 - 3,745,611.50 3,745,611.50 (1,310,964.02) - 2,434,647.48 ------9/01/2025 7,020,000.00 3,745,611.50 10,765,611.50 (1,310,964.02) - 9,454,647.48 ------3/01/2026 - 3,538,170.50 3,538,170.50 (1,238,359.67) - 2,299,810.83 ------9/01/2026 7,295,000.00 3,538,170.50 10,833,170.50 (1,238,359.67) - 9,594,810.83 ------3/01/2027 - 3,317,861.50 3,317,861.50 (1,161,251.52) - 2,156,609.98 ------9/01/2027 7,590,000.00 3,317,861.50 10,907,861.50 (1,161,251.52) - 9,746,609.98 ------3/01/2028 - 3,084,848.50 3,084,848.50 (1,079,696.97) - 2,005,151.53 ------9/01/2028 7,905,000.00 3,084,848.50 10,989,848.50 (1,079,696.97) - 9,910,151.53 ------3/01/2029 - 2,838,212.50 2,838,212.50 (993,374.37) - 1,844,838.13 ------9/01/2029 8,230,000.00 2,838,212.50 11,068,212.50 (993,374.37) - 10,074,838.13 ------3/01/2030 - 2,579,379.00 2,579,379.00 (902,782.65) - 1,676,596.35 ------9/01/2030 8,580,000.00 2,579,379.00 11,159,379.00 (902,782.65) - 10,256,596.35 ------3/01/2031 - 2,305,248.00 2,305,248.00 (806,836.80) - 1,498,411.20 ------9/01/2031 8,945,000.00 2,305,248.00 11,250,248.00 (806,836.80) - 10,443,411.20 ------3/01/2032 - 2,014,982.75 2,014,982.75 (705,243.96) - 1,309,738.79 ------9/01/2032 9,330,000.00 2,014,982.75 11,344,982.75 (705,243.96) - 10,639,738.79 ------3/01/2033 - 1,712,224.25 1,712,224.25 (599,278.48) - 1,112,945.77 ------9/01/2033 9,730,000.00 1,712,224.25 11,442,224.25 (599,278.48) - 10,842,945.77 ------3/01/2034 - 1,396,485.75 1,396,485.75 (488,770.01) - 907,715.74 ------9/01/2034 10,150,000.00 1,396,485.75 11,546,485.75 (488,770.01) - 11,057,715.74 ------3/01/2035 - 1,067,118.25 1,067,118.25 (373,491.38) - 693,626.87 ------9/01/2035 10,590,000.00 1,067,118.25 11,657,118.25 (373,491.38) - 11,283,626.87 ------3/01/2036 - 723,472.75 723,472.75 (253,215.46) - 470,257.29 ------9/01/2036 11,045,000.00 723,472.75 11,768,472.75 (253,215.46) - 11,515,257.29 ------3/01/2037 - 365,062.50 365,062.50 (127,771.87) - 237,290.63 ------9/01/2037 11,250,000.00 365,062.50 11,615,062.50 (127,771.87) - 11,487,290.63 ------

Total $122,405,000.00 $168,022,867.81 $290,427,867.81 ($58,808,003.48) ($11,408,726.13) $220,211,138.20 $53,600,000.00 $20,726,386.21 ($4,751,843.71) $69,574,542.50 $7,725,000.00 $2,094,497.98 ($689,708.98) $9,129,789.00

Note: (1) Interest has been capitalized through the September 1, 2012 bond interest payment.

J.J.B. Hilliard, W.L. Lyons, LLC

B-1 Kentucky Municipal Power Agency Power System Revenue Bonds, Series 2010 (Prairie State Project)

ANNUAL GROSS AND NET DEBT SERVICE REQUIREMENTS ON SERIES 2007 AND 2010 BONDS

Series 2007 Gross Debt Service Series 2010 Gross Debt Service Less: Capitalized Capitalized DSR Earnings DSR Earnings Fiscal Year 35% Direct Pay Interest on Interest on and Releases for and Releases for Ended June Total Gross Debt on Series 2010 Series 2007 Series 2010 Series 2007 Series 2010 Net New Debt 30 Principal Interest Total P+I Principal Interest Total P+I Service BABs Bonds Bonds Bonds(1) Bonds(2) Service

2010 - $15,835,723.00 $15,835,723.00 - - - 15,835,723.00 - ($15,835,723.00) - - - - 2011 - 15,835,723.00 15,835,723.00 - $7,739,806.25 $7,739,806.25 23,575,529.25 ($2,067,845.07) (15,835,723.00) ($5,671,961.18) - - - 2012 - 15,835,723.00 15,835,723.00 - 10,169,088.50 10,169,088.50 26,004,811.50 (2,716,876.74) (15,835,723.00) (7,452,211.76) - - - 2013 - 15,835,723.00 15,835,723.00 - 10,169,088.50 10,169,088.50 26,004,811.50 (2,716,876.74) (7,917,861.50) (3,726,105.88) ($606,762.25) ($217,525.84) $10,819,679.29 2014 $4,450,000.00 15,721,095.50 20,171,095.50 $4,355,000.00 10,123,212.00 14,478,212.00 34,649,307.50 (2,716,876.74) - - (1,213,524.50) (435,051.68) 30,283,854.58 2015 4,685,000.00 15,484,724.75 20,169,724.75 4,450,000.00 10,025,964.50 14,475,964.50 34,645,689.25 (2,716,876.74) - - (1,213,524.50) (435,051.68) 30,280,236.33 2016 4,940,000.00 15,233,509.50 20,173,509.50 4,585,000.00 9,888,661.00 14,473,661.00 34,647,170.50 (2,716,876.74) - - (1,213,524.50) (435,051.68) 30,281,717.58 2017 5,235,000.00 14,965,950.00 20,200,950.00 6,380,000.00 9,692,962.50 16,072,962.50 36,273,912.50 (2,716,876.74) - - (2,837,161.03) (435,051.68) 30,284,823.05 2018 5,405,000.00 14,685,981.25 20,090,981.25 4,975,000.00 9,498,900.00 14,473,900.00 34,564,881.25 (2,716,876.74) - - (1,131,797.56) (435,051.68) 30,281,155.27 2019 5,700,000.00 14,394,475.00 20,094,475.00 5,145,000.00 9,321,262.00 14,466,262.00 34,560,737.00 (2,716,876.74) - - (1,131,797.56) (435,051.68) 30,277,011.02 2020 6,005,000.00 14,087,218.75 20,092,218.75 5,350,000.00 9,123,287.75 14,473,287.75 34,565,506.50 (2,716,876.74) - - (1,131,797.56) (435,051.68) 30,281,780.52 2021 6,330,000.00 13,763,425.00 20,093,425.00 5,585,000.00 8,887,955.00 14,472,955.00 34,566,380.00 (2,716,876.74) - - (1,131,797.56) (435,051.68) 30,282,654.02 2022 6,670,000.00 13,422,175.00 20,092,175.00 5,860,000.00 8,610,755.00 14,470,755.00 34,562,930.00 (2,716,876.74) - - (1,131,797.56) (435,051.68) 30,279,204.02 2023 7,030,000.00 13,062,550.00 20,092,550.00 6,160,000.00 8,310,255.00 14,470,255.00 34,562,805.00 (2,716,876.74) - - (1,131,797.56) (435,051.68) 30,279,079.02 2024 7,410,000.00 12,683,500.01 20,093,500.01 6,470,000.00 7,991,663.00 14,461,663.00 34,555,163.01 (2,707,000.79) - - (1,131,797.56) (435,051.68) 30,281,312.98 2025 7,810,000.00 12,283,975.01 20,093,975.01 6,755,000.00 7,659,147.00 14,414,147.00 34,508,122.01 (2,659,526.44) - - (1,131,797.56) (435,051.68) 30,281,746.33 2026 8,230,000.00 11,862,925.00 20,092,925.00 7,020,000.00 7,283,782.00 14,303,782.00 34,396,707.00 (2,549,323.69) - - (1,131,797.56) (435,051.68) 30,280,534.07 2027 8,675,000.00 11,419,168.75 20,094,168.75 7,295,000.00 6,856,032.00 14,151,032.00 34,245,200.75 (2,399,611.19) - - (1,131,797.56) (435,051.68) 30,278,740.32 2028 9,135,000.00 10,956,193.75 20,091,193.75 7,590,000.00 6,402,710.00 13,992,710.00 34,083,903.75 (2,240,948.49) - - (1,131,797.56) (435,051.68) 30,276,106.02 2029 9,610,000.00 10,480,687.50 20,090,687.50 7,905,000.00 5,923,061.00 13,828,061.00 33,918,748.50 (2,073,071.34) - - (1,131,797.56) (435,051.68) 30,278,827.92 2030 10,105,000.00 9,987,812.50 20,092,812.50 8,230,000.00 5,417,591.50 13,647,591.50 33,740,404.00 (1,896,157.02) - - (1,131,797.56) (435,051.68) 30,277,397.74 2031 10,625,000.00 9,469,562.50 20,094,562.50 8,580,000.00 4,884,627.00 13,464,627.00 33,559,189.50 (1,709,619.45) - - (1,131,797.56) (435,051.68) 30,282,720.81 2032 11,170,000.00 8,924,687.50 20,094,687.50 8,945,000.00 4,320,230.75 13,265,230.75 33,359,918.25 (1,512,080.76) - - (1,131,797.56) (435,051.68) 30,280,988.25 2033 11,740,000.00 8,351,937.50 20,091,937.50 9,330,000.00 3,727,207.00 13,057,207.00 33,149,144.50 (1,304,522.44) - - (1,131,797.56) (435,051.68) 30,277,772.82 2034 12,345,000.00 7,749,812.50 20,094,812.50 9,730,000.00 3,108,710.00 12,838,710.00 32,933,522.50 (1,088,048.49) - - (1,131,797.56) (435,051.68) 30,278,624.77 2035 12,975,000.00 7,116,812.50 20,091,812.50 10,150,000.00 2,463,604.00 12,613,604.00 32,705,416.50 (862,261.39) - - (1,131,797.56) (435,051.68) 30,276,305.87 2036 13,640,000.00 6,451,437.50 20,091,437.50 10,590,000.00 1,790,591.00 12,380,591.00 32,472,028.50 (626,706.84) - - (1,131,797.56) (435,051.68) 30,278,472.42 2037 14,340,000.00 5,751,937.50 20,091,937.50 11,045,000.00 1,088,535.25 12,133,535.25 32,225,472.75 (380,987.33) - - (1,131,797.56) (435,051.68) 30,277,636.18 2038 15,075,000.00 5,016,562.50 20,091,562.50 11,250,000.00 365,062.50 11,615,062.50 31,706,625.00 (127,771.87) - - (1,131,797.56) (11,757,358.28) 18,689,697.29 2039 15,870,000.00 4,223,100.00 20,093,100.00 - - - 20,093,100.00 - - - (1,131,797.56) - 18,961,302.44 2040 16,725,000.00 3,367,481.25 20,092,481.25 - - - 20,092,481.25 - - - (1,131,797.56) - 18,960,683.69 2041 17,625,000.00 2,465,793.75 20,090,793.75 - - - 20,090,793.75 - - - (1,131,797.56) - 18,958,996.19 2042 18,575,000.00 1,515,543.75 20,090,543.75 - - - 20,090,543.75 - - - (1,131,797.56) - 18,958,746.19 2043 19,580,000.00 513,975.00 20,093,975.00 - - - 20,093,975.00 - - - (21,144,036.28) - (1,050,061.28)

Total $307,710,000.00 $358,756,903.02 $666,466,903.02 $183,730,000.00 $190,843,752.00 $374,573,752.00 $1,041,040,655.02 ($58,808,003.48) ($55,425,030.50) ($16,850,278.82) ($56,523,472.06) ($22,416,124.44) $831,017,745.72

J.J.B. Hilliard, W.L. Lyons, LLC Public Finance

B-2 KENTUCKY MUNICIPAL POWER AGENCY POWER SYSTEM REVENUE BONDS

Long-Term Debt Outstanding as of April 1, 2010

Final Par Amount Bonds Issuer Maturity Issued Outstanding

Power System Revenue Bonds, Series 2007A 09/01/2042 $291,065,000 $291,065,000

Taxable Power System Revenue Bonds, Series 2007B 09/01/2016 16,645,000 16,645,000

$307,710,000 $307,710,000

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B-3 Financial Information The following is a four year presentation of KMPA's finances to include balance sheets, statement of revenues, expenses and changes in retained earnings. Please note that the first year of audited financial statements for KMPA was as of and for the period ending June 30, 2006. See Appendix C for the KMPA 2008-09 Audited Financial Statements.

KENTUCKY MUNICIPAL POWER AGENCY

BALANCE SHEETS

ASSETS June 30, 2009 2008 2007 2006 ASSETS Current Assets Cash and investments $ 769,117 $ 1,990,878 $ - $ - Other receivables 916 891 132,020 - Prepayments 2,746 2,890 - - Total current assets $ 772,779 $ 1,994,659 $ 132,020 $ -

Noncurrent Assets Restricted assets Project fund 114,723,471 195,769,863 4,142,238 10,450 Reserve fund 22,841,648 23,284,562 - - Pledged collateral 7,750,000 - - - Interest receivable 1,985,731 8,093,972 - - Other assets Unamortized debt issuance costs 3,283,559 3,388,011 - - Preliminary survey and investigation 547,188 - - - Capital assets Construction work in progress 171,234,658 82,795,683 9,617,786 2,353,144 Total noncurrent assets $ 322,366,255 $ 313,332,091 $ 13,760,024 $ 2,363,594

TOTAL ASSETS $ 323,139,034 $ 315,326,750 $ 13,892,044 $ 2,363,594

LIABILITIES

Current Liabilities Accounts payable $ 8,667,523 $ 147,841 $ - $ - Current liabilities payable from restricted assets Construction payables - - 3,834,300 309,471 Accrued interest payable 5,278,574 5,278,574 83,038 - Total current liabilities $ 13,946,097 $ 5,426,415 $ 3,917,338 $ 309,471

Noncurrent Liabilities Revenue bond anticipation notes - - 9,995,062 2,058,357 Revenue bonds 307,710,000 307,710,000 - - Unamortized debt discount (1,666,668) (1,725,333) - - Unamortized debt premium 3,779,344 3,893,294 - - Total noncurrent liabilities $ 309,822,676 $ 309,877,961 $ 9,995,062 $ 2,058,357

TOTAL LIABILITIES $ 323,768,773 $ 315,304,376 $ 13,912,400 $ 2,367,828

NET ASSETS Invested in capital assets, net of related debt 12,586,660 (2,063,842) (69,338) (4,234) Restricted - 2,815,398 - - Unrestricted (13,216,399) (729,182) 48,982 - Total net assets $ (629,739) $ 22,374 $ (20,356) $ (4,234)

TOTAL LIABILITIES & NET ASSETS $ 323,139,034 $ 315,326,750 $ 13,892,044 $ 2,363,594

Source: Kentucky Municipal Power Agency

B-4 KENTUCKY MUNICIPAL POWER AGENCY

COMBINED STATEMENTS OF INCOME AND CHANGES IN RETAINED EARNINGS

Years Ending June 30, 2009 2008 2007 2006

OPERATING REVENUES $ - $ - $ - $ -

OPERATING EXPENSES Operation and Maintenance (1,113,518) (686,653) (121,462) (4,127)

Total Operating Expenses$ (1,113,518) $ (686,653) $ (121,462) $ (4,127)

OPERATING LOSS $ (1,113,518) $ (686,653) $ (121,462) $ (4,127)

NONOPERATING REVENUES/EXPENSES Contributions from member 173,251 263,423 105,340 - Investment income 8,564,718 9,166,816 628 - Interest expense (15,835,723) (12,484,151) (225,644) (72,444) Amortization of debt issuance cost/discount/premium (49,168) (36,906) - - Interest charged to construction 7,608,327 3,820,201 225,016 72,444 Total Nonoperating Revenues/Expenses$ 461,405 $ 729,383 $ 105,340 $ -

Change in Net Assets (652,113) 42,730 (16,122) (4,127)

TOTAL NET ASSETS, BEGINNING OF YEAR $ 22,374 $ (20,356) $ (4,234) $ (107)

TOTAL NET ASSETS, END OF YEAR $ (629,739) $ 22,374 $ (20,356) $ (4,234)

Source: Kentucky Municipal Power Agency

B-5 KENTUCKY MUNICIPAL POWER AGENCY

INTERIM BALANCE SHEETS

Through December 31, 2009 2008 ASSETS Current Assets Cash and investments $ 316,555 $ 271,582 Other receivables 2,045,584 3,111 Prepayments 5,683 - Total current assets $ 2,367,822 $ 274,693

Noncurrent Assets Restricted assets Project fund 58,402,859 160,907,043 Reserve fund 22,432,553 23,954,296 Pledged collateral 9,500,000 2,750,000 Interest receivable 1,535,233 - Other assets Unamortized debt issuance costs 3,231,333 3,335,785 Capital assets Construction work in progress 218,669,504 123,573,289 Total noncurrent assets $ 313,771,482 $ 314,520,413

TOTAL ASSETS $ 316,139,304 $ 314,795,106

LIABILITIES

Current Liabilities Accounts payable $ 1,822,448 $ 56,301 Current liabilities payable from restricted assets Accrued interest payable 5,278,574 5,278,574 Total current liabilities $ 7,101,022 $ 5,334,875

Noncurrent Liabilities Revenue bonds 307,710,000 307,710,000 Unamortized debt discount (1,637,335) (1,696,001) Unamortized debt premium 3,722,369 3,836,319 Total noncurrent liabilities $ 309,795,034 $ 309,850,318

TOTAL LIABILITIES $ 316,896,056 $ 315,185,193

NET ASSETS Invested in capital assets, net of related debt 2,441,214 4,670,094 Restricted - - Unrestricted (3,197,966) (5,060,181) Total net assets $ (756,752) $ (390,087)

TOTAL LIABILITIES & NET ASSETS $ 316,139,304 $ 314,795,106

Source: Kentucky Municipal Power Agency

B-6 INTERIM INCOME STATEMENTS

Through December 31, 2009 2008

OPERATING REVENUES Sales to members$ 1,732,383 $ - Other revenues$ 299,814 $ -

Total Operating Revenues$ 2,032,197 $ -

OPERATING EXPENSES Purchased power 1,797,952 - Fuel - - Production 9,513 - Transmission and local facilities - - Other operating 358,182 445,510 Maintenance - - Depreciation - - Future recoverable costs - -

Total Operating Expenses$ 2,165,647 $ 445,510

OPERATING INCOME $ (133,450) $ (445,510)

NONOPERATING REVENUES/EXPENSES Interest expense on revenue bonds 7,917,861 7,917,861 Interest charged to construction (5,423,976) 2,250,765 Amortization of discount and issuance costs 81,559 81,559 Amortization of premium (56,975) (56,975) Interest income (2,526,480) (10,227,849) Other non-operating expenses (income) 1,573 1,589

Total Nonoperating Revenues/Expenses$ (6,438) $ (33,050)

NET INCOME/LOSS (127,012) (412,460)

TOTAL NET ASSETS, BEGINNING OF YEAR $ (629,739) $ 22,374

TOTAL NET ASSETS, END OF YEAR $ (756,751) $ (390,086)

Source: Kentucky Municipal Power Agency Unaudited Financial Statements

B-7

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APPENDIX C

KENTUCKY MUNICIPAL POWER AGENCY POWER SYSTEM REVENUE BONDS, SERIES 2010

Audited Financial Statements of the Kentucky Municipal Power Agency For Fiscal Years Ended June 30, 2009 and 2008

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APPENDIX D

KENTUCKY MUNICIPAL POWER AGENCY POWER SYSTEM REVENUE BONDS, SERIES 2010

Operating and Financial Data for the Members

[This Page Intentionally Left Blank] PADUCAH POWER SYSTEM (“PPS”)

Organization and Powers

The Electric Plant Board of the City of Paducah, Kentucky d/b/a Paducah Power System (“PPS”) was created by an ordinance duly enacted on January 30, 1945 by the City Commission of the City of Paducah, Kentucky (the “City”) which ordinance was amended on March 7, 1959. PPS is a political subdivision of the Commonwealth of Kentucky and is a separate and distinct corporate entity from the City. PPS is governed by five-person board of directors, four members of which are appointed by the City’s Mayor to staggered four-year terms subject to approval by the City Commission. By statute, one position on the PPS board is to be filled by a representative of the City Commission or the City Manager.

On August 23, 1960, the City Commission of the City adopted an ordinance declaring it desirable for PPS to purchase and operate a municipal electric plant system and setting the question for a referendum of the City’s voters. The referendum was held on November 8, 1960, and resulted in approval of the acquisition by PPS of the existing investor-owned electric distribution system serving the City by over 76 percent of the voters.

In July of 1961, PPS issued revenue bonds to finance the purchase from Kentucky Utilities Company (“KU”) of its electric distribution system located within the city limits of the City and a fringe area in McCracken County, Kentucky, beyond the city limits. PPS thereafter began providing retail electric service within its exclusive service area under a long-term wholesale power contract with the Tennessee Valley Authority.

The Electric Plant

The PPS distribution system serves approximately 22,400 customers. Of this number, almost 19,000 are classified as residential customers. The PPS service area includes most of the area within the corporate boundaries of the City which have been extended a number of times by annexation over the years and a portion of McCracken County outside of the city limits.

The total power requirements for the system are currently purchased from the Kentucky Municipal Power Agency (“KMPA”) under a Partial Requirements Power Sales Agreement dated as of December 14, 2009. KMPA has a network integration transmission service agreement in place with Louisville Gas & Electric/Kentucky Utilities whose transmission system adjoins the PPS service area. Power is received by PPS at two main delivery points at 161,000 volts. One delivery point is located in west McCracken County near the intersection of Mayfield- Metropolis Road and Old U.S. 60. The second delivery point is located near the southern PPS boundary at its Substation No. 8 on Schneidman Road.

PPS has in place an agreement with the Tennessee Valley Authority dated September 21, 2007 for the provision of emergency back-up power to PPS in the event of disruption of service over the Louisville Gas & Electric/Kentucky Utilities transmission grid. The delivery point for power under this agreement is also located at PPS Substation No. 8. The switch at this delivery point is normally in an open configuration except in emergency conditions.

PPS is nearing completion of construction and testing of a gas-fired combustion turbine generating plant that is located adjacent to Substation No. 8. The plant employs two generators each having a nominal capacity of 62 MW. The generating plant will primarily be used to supply peaking power in times of high demand, but its total capacity of 124 MW is sufficient to serve the entire PPS load in McCracken County during all but peak usage periods. The combustion turbine generating plant is scheduled for substantial completion in May 2010.

A 69,000 volt transmission system connects the system’s eight distribution substations to the delivery points. The 69 KV system is “looped” from distribution substation to substation to provide flexibility in switching and increase reliability.

The distribution substations reduce the voltage from 69,000 volts to 12,470 volts that is the System’s nominal distribution voltage. Distribution transformers, both pole-mounted and pad-mounted, reduce the voltage to the utilization level required by the system’s customers.

The total transformer nameplate capacity of the distribution substations is 356,000 kilo-volt amps. The nameplate capacity of the delivery point transformers (total system capacity) is 316,000 kilo-volt amperes. An all-time maximum system pack for the system is 161,000 kilowatts. This peak was set in August 2000.

D-1

PPS has total assets of $46,077,581 with 895 miles of line with 25 customers per mile and an average residential usage of 1,066 kilowatt-hours per month.

Neither the rates charged nor services provided by PPS are regulated by the Kentucky Public Service Commission or the City. The PPS Board is autonomous in its rate-setting authority.

The current schedule for electric rates, as of February 2010, is shown below.

Customer Class Retail Rates Fuel Adj. Effective Rate

Residential Customer Charge $9.25 $9.25 All KWH $0.08228 $0.00920 $0.073080 GSA-1 Customer Charge $17.50 $17.50 All KWH $0.09618 $0.00906 $0.087120 GSA-1 Seasonal Customer Charge $17.50 $17.50 All KWH $0.10948 $0.00906 $0.100420 GSA-2 Customer Charge $109.00 $109.00 1st 15,000 KWH $0.09555 $0.00906 $0.086490 Additional KWH $0.05112 $0.00891 $0.042210 1st 50 KW Demand $0.00 - 51-1,000 KW Demand $14.44 $14.44 GSA-2 Seasonal Customer Charge $109.00 $109.00 1st 15,000 KWH $0.10885 $0.00906 $0.099790 Additional KWH $0.06442 $0.00891 $0.055510 1st 50 KW Demand $0.00 - 51-1,000 KW Demand $18.40 $18.40 GSA-3 Customer Charge $275.00 $275.00 All KWH $0.05193 $0.00891 $0.043020 0-1,000 KW Demand $14.52 $14.52 1,001 – 5,000 KW Demand $16.78 $16.78 Drainage Pumps Customer Charge $10.00 $10.00 All KWH $0.06141 $0.00906 $0.052350 Outdoor Lighting All KWH $0.06186 $0.00920 $0.052660 Customer Charge See Note

______Source: Paducah Power System Note: Customer charges for outdoor lighting are dependent on type and size.

Fuel charges are applicable to all KWH.

D-2 Set forth below is a list of the ten largest electric customers in terms of amount of electricity and revenue generated during fiscal year 2009.

Usage Customer (Kilowatt Hrs.) Dollar Sales Western Baptist Hospital 30,455,970 $2,565,753.67 Lourdes Hospital 24,388,320 2,041,733.49 Infiniti Plastic Tech Inc. 10,030,500 846,204.13 HB Fuller Co. 8,201,400 754,835.05 Walmart Stores, Inc. 8,729,800 718,862.46 VMV Paducah Bilt 6,624,000 645,077.67 West Kentucky Community and Technical College 6,761,544 583,984.42 Paducah Water Works 6,233,260 547,016.44 Kroger Stores 5,961,360 488,041.77 Dippin Dots Inc. 5,559,200 466,188.46

______Source: Paducah Power System

Listed below are customer statistics of the System for the last five fiscal years.

FY09 FY08 FY07 FY06 FY05 Residential 18,695 18,670 18,652 18,711 18,804 Commercial 3,321 3,303 3,279 3,431 3,308 Lighting 472 482 493 484 474 Total 22,488 22,455 22,424 22,626 22,586 MWH Sold 606,178 657,178 621,481 626,750 586,742 Peak MWH 150 159 154 158 154

______Source: Paducah Power System

D-3 Financial Information The following is a five year presentation of the System's finances to include balance sheets, statement of revenues, expenses and changes in retained earnings, and calculations of debt service coverage based on historical revenues. Please refer to Appendix E for the PPS' 2008-09 Audited Financial Statements.

ELECTRIC PLANT BOARD OF THE CITY OF PADUCAH, KENTUCKY D/B/A PADUCAH POWER SYSTEM (PPS)

BALANCE SHEETS

ASSETS June 30, 2009 2008 2007 2006 2005 UTILITY PLANT Transmission system $ 2,878,199 $ 2,706,095 $ 2,641,833 $ 2,640,110 $ 2,598,800 Distribution system 62,911,581 60,310,905 57,657,209 53,813,987 52,107,943 Land 2,053,964 1,406,069 1,405,769 1,405,570 1,405,570 General plant 14,788,207 14,119,013 13,566,428 12,379,824 11,255,333 82,631,951 78,542,082 75,271,239 70,239,491 67,367,646 Less accumulated depreciation (32,503,035) (30,210,972) (29,712,041) (28,087,688) (26,406,569) 50,128,916 48,331,110 45,559,198 42,151,803 40,961,077 Construction work in progress 22,200,696 813,354 518,383 319,649 524,062 Total Utility Plant $ 72,329,612 $ 49,144,464 $ 46,077,581 $ 42,471,452 $ 41,485,139

OTHER PROPERTY AND INVESTMENTS Sinking Fund 14,162,969 882,604 931,049 903,009 881,909 Investment in SEDC 49,944 32,297 16,539 12,662 5,282 Depreciation Fund 1,044,469 1,022,723 945,835 975,224 945,449 Construction Fund 120,268,515 - - - 245,474 Investment in CSA 26,740 26,740 26,740 26,740 27,831 Non-utility property 7,891 8,869 9,848 10,826 11,804 Total Other Property and Investments$ 135,560,528 $ 1,973,233 $ 1,930,011 $ 1,928,461 $ 2,117,749

CURRENT ASSETS Cash and temporary cash investments 2,738,605 1,466,762 4,086,775 65,398 142,743 Accounts receivable (net of allowance for doubtful accounts) 4,573,120 4,446,807 2,551,308 2,680,184 2,000,026 Materials and supplies 1,742,997 1,507,698 1,312,167 1,267,875 885,302 Prepaid expenses 10,621 8,052 53,433 59,671 44,585 Loan receivable - - - 236,008 1,197,460 Grants receivable 3,834,896 - - - - Unamortized software maintenance - - 10,520 - - Receivable from TVA - 621,093 - - - Accrued interest receivable 538,357 - - - - Rent receivable 77,280 74,063 71,001 68,960 67,162 Total Current Assets $ 13,515,876 $ 8,124,475 $ 8,085,204 $ 4,378,096 $ 4,337,278

DEFERRED DEBITS Unamortized debt discount 2,932,207 43,994 53,210 62,427 71,643 Receivable for conservation 154,273 213,266 290,412 519,743 520,167 Unemployment Trust Fund 28,201 21,775 31,324 32,151 - Other deferred debits 9,982 2,651 1,703 907 5,778 Total Deferred Debits $ 3,124,663 $ 281,686 $ 376,649 $ 615,228 $ 597,588

TOTAL ASSETS $ 224,530,679 $ 59,523,858 $ 56,469,445 $ 49,393,237 $ 48,537,754

Source: Paducah Power System Audited Financial Statements

D-4 ELECTRIC PLANT BOARD OF THE CITY OF PADUCAH, KENTUCKY D/B/A PADUCAH POWER SYSTEM (PPS)

BALANCE SHEETS

LIABILITIES June 30, 2009 2008 2007 2006 2005

CURRENT LIABILITIES Accounts payable $ 5,188,844 $ 4,542,152 $ 4,061,671 $ 4,124,956 $ 3,451,644 Line of credit - 2,039,362 1,568,014 1,387,326 1,690,679 Customer deposits 750,776 775,110 768,282 774,942 811,117 Accrued taxes and equivalents 584,207 512,251 460,118 460,229 421,715 Accrued interest 3,469,279 157,502 156,375 153,173 151,400 Other current and accrued liabilities 1,207,347 616,696 731,044 520,553 505,495 Bonds payable 415,000 400,000 385,000 370,000 355,000 Total Current Liabilities $ 11,615,453 $ 9,043,073 $ 8,130,504 $ 7,791,179 $ 7,387,050

NON-CURRENT LIABILITIES Bonds held by public 170,293,849 3,742,084 4,109,368 4,461,653 4,798,938 Advances for conservation loans 185,142 251,666 314,479 413,480 539,387 Note payable - 6,000,000 6,000,000 - - Other deferred credits 92,798 90,995 87,459 81,989 27,706 Total Non-Current Liabilities $ 170,571,789 $ 10,084,745 $ 10,511,306 $ 4,957,122 $ 5,366,031

TOTAL LIABILITIES $ 182,187,242 $ 19,127,818 $ 18,641,810 $ 12,748,301 $ 12,753,081

NET ASSETS Invested in capital assets, net of related debt (98,379,237) 39,002,380 35,583,213 37,639,799 36,331,201 Restricted for: Capital projects 120,268,515 - - - 245,474 Debt service 15,207,438 1,905,327 1,876,884 1,878,233 1,827,358 Unrestricted - net deficit 5,246,721 (511,667) 367,538 (2,873,096) (2,619,360) Total Net Assets $ 42,343,437 $ 40,396,040 $ 37,827,635 $ 36,644,936 $ 35,784,673

TOTAL LIABILITIES & NET ASSETS $ 224,530,679 $ 59,523,858 $ 56,469,445 $ 49,393,237 $ 48,537,754

Source: Paducah Power System Audited Financial Statements

D-5 ELECTRIC PLANT BOARD OF CITY OF PADUCAH, KENTUCKY D/B/A PADUCAH POWER SYSTEM (PPS)

COMBINED STATEMENTS OF INCOME AND CHANGES IN RETAINED EARNINGS

Years Ending June 30, 2009 2008 2007 2006 2005 OPERATING REVENUES Charges for services: Residential $ 22,078,610 $ 19,721,428 $ 18,189,699 $ 17,183,717 $ 14,794,944 Large lighting and power 28,338,239 25,913,675 23,331,787 21,896,664 19,419,267 Small lighting and power 6,795,227 5,875,684 5,560,865 5,332,905 4,857,466 Street and outdoor 1,345,027 1,448,837 1,419,643 1,295,351 1,214,513 Total Charges for Services $ 58,557,103 $ 52,959,624 $ 48,501,994 $ 45,708,637 $ 40,286,190

Miscellaneous: Forfeited discounts 336,662 284,027 263,746 244,338 222,690 Service revenue 1,172,305 1,010,958 955,261 916,572 532,578 Other electric revenue 14,949 12,771 12,518 12,481 10,665 Total Miscellaneous $ 1,523,916 $ 1,307,756 $ 1,231,525 $ 1,173,391 $ 765,933

TOTAL OPERATING REVENUES $ 60,081,019 $ 54,267,380 $ 49,733,519 $ 46,882,028 $ 41,052,123

PURCHASED POWER AND OPERATING EXPENSES Purchased power cost 47,563,950 41,398,313 38,757,861 36,455,268 31,817,600 General operating expense 5,453,155 5,220,931 5,254,983 5,178,379 4,611,921 Maintenance expense 1,116,236 1,258,786 1,137,692 1,118,601 946,094 Other operating expense 3,665,182 3,504,148 3,189,240 3,083,896 2,871,133 Total Purchased Power and Operating Expenses $ 57,798,523 $ 51,382,178 $ 48,339,776 $ 45,836,144 $ 40,246,748

OPERATING INCOME $ 2,282,496 $ 2,885,202 $ 1,393,743 $ 1,045,884 $ 805,375

NONOPERATING REVENUES/EXPENSES Interest paid on indebtedness (888,753) (537,208) (523,815) (252,426) (197,469) Interest earned on investments 651,276 216,270 315,997 74,855 42,061 Net amortization discount and premium on debt (143,451) (41,931) (41,931) (41,931) (41,931) Nonoperating income 45,829 46,072 38,705 33,881 24,088 Total Nonoperating Revenues/Expenses$ (335,099) $ (316,797) $ (211,044) $ (185,621) $ (173,251)

CHANGES IN NET ASSETS $ 1,947,397 $ 2,568,405 $ 1,182,699 $ 860,263 $ 632,124

NET ASSETS, BEGINNING OF YEAR $ 40,396,040 $ 37,827,635 $ 36,644,936 $ 35,784,673 $ 35,152,549

NET ASSETS, END OF YEAR $ 42,343,437 $ 40,396,040 $ 37,827,635 $ 36,644,936 $ 35,784,673

Source: Paducah Power System Audited Financial Statements

D-6 PRINCETON ELECTRIC PLANT BOARD ("PEPB")

Organization and Powers

The Electric Plant Board of the City of Princeton, Kentucky (“PEPB”) was created by an ordinance duly enacted on August 18, 1958 by the City Council of the City of Princeton, Kentucky (“City Council”). PEPB is a political subdivision of the Commonwealth of Kentucky that is a separate and distinct corporate entity from the City of Princeton, Kentucky (“City”). PEPB is governed by a five-person board of directors (“Board”), four members of which are residents, taxpayers and legal voters of the City appointed by the City’s Mayor to staggered four-year terms subject to the approval of the City Council. By statute, one position on the Board is occupied by a member of the City Council designated by the City’s Mayor subject to the approval of the City Council.

On September 8, 1959, the City Council adopted an ordinance declaring it desirable for PEPB to purchase and operate a municipal electric plant system and setting the question for a referendum of the City’s voters. The referendum was held on November 3, 1959, and resulted in approval of the acquisition by PEPB of the then existing investor-owned electric distribution system serving the City.

In 1960, PEPB issued revenue bonds to finance the purchase of the electric distribution system of Kentucky Utilities Company (“KU”) located within the limits of the City and a fringe area in Caldwell County, Kentucky beyond the limits of the City. In July of 1961, PEPB purchased said electric distribution system of KU and thereafter began providing retail electric service within PEPB’s exclusive service area under a long-term wholesale power contract with the Tennessee Valley Authority.

The Electric Plant

The PEPB distribution system serves approximately 3,931customers. Of this number, approximately 3,125 are classified as residential customers. The PEPB service area includes most of the area within the corporate boundaries of the City and a portion of Caldwell County outside the limits of the City.

The total power requirements for the system are currently purchased from the Kentucky Municipal Power Agency (“KMPA”) under a Partial Requirements Power Sales Agreement dated as of December 28, 2009. KMPA has a network integration transmission service agreement in place with Louisville Gas & Electric / Kentucky Utilities (“LG&E/KU”) whose transmission system adjoins the PEPB service area. Power is received by PEPB at a single delivery point north of the City at 161,000 volts.

PEPB has in place an agreement with the Tennessee Valley Authority dated September 21, 2007 for the provision of emergency back-up power to PEPB in the event of disruption of service over the LG&E/KU grid. The delivery point for power under this agreement is the Kentucky Dam – Hopkinsville, Princeton Substation Tap located slightly east of the City. The switch at this delivery point is in an open configuration except in emergency conditions.

PEPB distributes more than 108,000,000 kWh to residential, commercial and industrial customers within its service area utilizing two 30 MW substations which are connected by a looped 69,000 volt transmission system. To better serve the needs of its industrial and commercial customers who have become more dependent on automation, PEPB has completed installation of a wireless supervisory control and data acquisition ("SCADA") system which allows for the remote control of all substation breakers and the collection of important system data, both of which help to significantly reduce outage times. The SCADA system also allows finite control of power factor correction with substantial savings realized monthly. The SCADA will be further improved with the addition of a fiber backbone system installed in conjunction with other system improvements. Additionally, several distribution circuits between substations have been strengthened with larger conductors for better backup protection during emergency conditions.

PEPB has total assets of $24,758,913, with 137 miles of line with 29 customers per mile, and an average residential usage of 750 kilowatt-hours per month.

In addition to operating the electric system, PEPB also owns and operates a wireless broadband system providing high-speed internet service to approximately 400 households within the City and surrounding areas of Caldwell County. The electric system and the wireless broadband system are operated, and accounted for, as distinct and separate assets of PEPB. D-7 Neither the rates charged nor services provided by PEPB are regulated by the Kentucky Public Service Commission or the City. The Board is autonomous in its rate-setting authority and control over the management and operation of the electric system and wireless broadband system.

Electric Rates

The current schedule for electric rates is shown below.

Customer Class Effective Rate, March 2010

Residential Customer Charge $8.68 All KWH $0.08400 GSA-1 Customer Charge $15.85/meter All KWH $0.09531 GSA-2 Customer Charge $105.66/meter 1st 50 KW Demand -- 51-1,000 KW Demand $15.71 1st 15,000 KWH $0.08896 Additional KWH $0.04896 GSA-3 Customer Charge $264.15 1st 1,000 KWH $15.46 Additional KWH $17.88 1st 550 KW Demand $0.05001 Additional KWH $0.04579

Outdoor Lighting Customer Charge See Note ______Source: Princeton Electric Plant Board Note: Customer charges for outdoor lighting are dependent on type and size.

Fuel charges are applicable to all KWH.

(The Remainder of This Page Intentionally Left Blank)

D-8

Set forth below is a list of the ten largest electric customers of the PEPB in terms of amount of electricity and revenue generated during fiscal year 2009.

Usage Customer (Kilowatt Hrs.) Dollar Sales Bremner Food Group, Inc. 20,170,260 $1,691,107.96 Special Metals 3,557,400 399,882.72 Hydro Gear 2,959,200 237,381.84 Bodycote Imt Inc. 2,518,800 314,876.15 Caldwell County Hospital 2,148,000 191,820.04 Walmart 2,139,300 193,141.13 E.W. James & Sons 2,019,000 186,562.94 Food Giant 1,592,400 149,327.01 Caldwell County Hospital 1,374,300 122,748.77 Caldwell Co. Board of Education 1,368,900 155,727.01 ______Source: Princeton Electric Plant Board

Listed below are customer statistics of the Board for the last five fiscal years:

FY09 FY08 FY07 FY06 FY05 Residential 3,125 3,207 3,262 3,259 3,234 Commercial 792 750 711 705 727 Lighting 14 14 14 14 15 Total 3,931 3,971 3,987 3,978 3,976 MWH Sold 106,534 112,943 109,138 108,185 104,569 Peak MW 24.8 27.0 25.7 24.1 23.7

______Source: Princeton Electric Plant Board

D-9 Financial Information The following is a five year presentation of PEPB's finances to include balance sheets, statement of revenues, expenses and changes in retained earnings, and calculations of debt service coverage based on historical revenues. Please refer to Appendix F for the PEPB 2008-09 Audited Financial Statements.

ELECTRIC PLANT BOARD OF THE CITY OF PRINCETON, KENTUCKY D/B/A PRINCETON ELECTRIC PLANT BOARD (PEPB)

BALANCE SHEETS

ASSETS June 30, 2009 2008 2007 2006 2005 CURRENT ASSETS Cash and cash equivalents$ 3,754,508 $ 9,499,742 $ 1,400,427 $ 1,065,083 $ 1,000,953 Special funds 589,467 226,604 180,118 592,787 594,955 Accounts receivable 1,261,900 1,155,842 1,083,401 974,359 804,221 Other receivables 837,560 28,656 27,653 28,153 26,199 Inventories 293,804 215,048 225,592 219,394 211,178 Prepaid expenses 68,977 72,704 75,056 65,003 64,634 Total current assets$ 6,806,216 $ 11,198,596 $ 2,992,247 $ 2,944,779 $ 2,702,140

NONCURRENT ASSETS Special Funds-restricted 405,997 149,930 146,622 139,497 136,267 Deferred Charges 181,782 200,228 62,495 72,091 95,403 Capital Assets: Electric plant 16,540,728 14,708,287 14,194,103 12,840,353 12,061,657 Construction work-in-progress 7,301,905 1,456,882 512,598 407,817 219,065 Less accumulated depreciation (6,477,715) (5,999,492) (5,468,866) (5,082,223) (4,719,676) Total noncurrent assets$ 17,952,697 $ 10,515,835 $ 9,446,952 $ 8,377,535 $ 7,792,716

TOTAL ASSETS $ 24,758,913 $ 21,714,431 $ 12,439,199 $ 11,322,314 $ 10,494,856

Source: Princeton Electric Plant Board Audited Financial Statements

D-10 ELECTRIC PLANT BOARD OF THE CITY OF PRINCETON, KENTUCKY D/B/A PRINCETON ELECTRIC PLANT BOARD (PEPB)

BALANCE SHEETS

LIABILITIES June 30, CURRENT LIABILITIES 2009 2008 2007 2006 2005 Current maturities of long-term debt$ 11,715,050 $ 164,066 $ 156,193 $ 143,490 $ 81,667 Accounts Payable 1,341,296 1,187,934 1,033,619 1,103,494 740,781 Construction Payable 1,196,383 Consumer deposits 260,055 248,793 219,118 215,184 171,354 Accrued liabilities Payroll and other taxes 121,861 95,251 98,220 85,602 86,622 Vacation and sick pay 146,401 110,265 95,668 81,574 67,536 Interest 13,646 7,429 7,083 8,376 7,608 Other 53,735 54,234 1,045,398 37,496 37,661 Deferred Credits 2,754 12,577 37,681 18,834 22,932 Total current liabilities $ 14,851,181 $ 1,880,549 $ 2,692,980 $ 1,694,050 $ 1,216,161

NONCURRENT LIABILITIES Advances from others 36,638 48,397 60,443 70,081 89,610 Long-term debt less current maturities 23,038 10,190,088 354,154 510,347 380,000 Total noncurrent liabilities $ 59,676 $ 10,238,485 $ 414,597 $ 580,428 $ 469,610

TOTAL LIABILITIES $ 14,910,857 $ 12,119,034 $ 3,107,577 $ 2,274,478 $ 1,685,771

NET ASSETS Invested in capital assets, 8,697,902 8,654,437 8,727,488 7,512,110 7,099,379 net of related debt Restricted for debt service 149,430 149,930 146,622 139,497 136,267 Unrestricted 1,000,724 791,032 457,514 1,396,229 1,573,439 Total net assets $ 9,848,056 $ 9,595,399 $ 9,331,624 $ 9,047,836 $ 8,809,085

TOTAL LIABILITIES & NET ASSETS $ 24,758,913 $ 21,714,433 $ 12,439,201 $ 11,322,314 $ 10,494,856

Source: Princeton Electric Plant Board Audited Financial Statements

D-11 ELECTRIC PLANT BOARD OF THE CITY OF PRINCETON, KENTUCKY D/B/A PRINCETON ELECTRIC PLANT BOARD (PEPB)

COMBINED STATEMENTS OF INCOME AND CHANGES IN RETAINED EARNINGS

Years Ending June 30, 2009 2008 2007 2006 2005 OPERATING REVENUES Charges for Services $ 10,460,942 $ 9,384,166 $ 8,643,450 $ 8,146,842 $ 7,256,780 Rent from electric property 72,161 71,433 66,749 64,900 67,412 Consumers' forfeited discounts 66,632 57,824 53,086 42,170 36,823 Other 163,016 160,276 145,589 78,775 46,458 Total Operating Revenues $ 10,762,751 $ 9,673,699 $ 8,908,874 $ 8,332,687 $ 7,407,473

OPERATING EXPENSE Power purchased 8,108,755 7,169,131 6,572,554 6,224,658 5,365,870 Distribution expenses 409,702 421,350 357,910 298,950 267,217 Maintenance 433,160 426,222 454,392 390,214 333,402 Accounting and collecting 219,255 199,663 159,234 154,686 145,226 Sales promotion 26,840 11,976 36,571 51,818 63,404 Administrative and general 518,458 471,595 395,617 399,746 373,543 Depreciation and amortization 603,628 581,607 468,099 427,501 391,576 Taxes 185,363 151,249 141,020 134,853 121,574 Total Operating Expenses $ 10,505,161 $ 9,432,793 $ 8,585,397 $ 8,082,426 $ 7,061,812

OPERATING INCOME $ 21,267,912 $ 240,906 $ 323,477 $ 250,261 $ 345,661

NONOPERATING REVENUES/EXPENSES Interest revenue 26,878 48,714 49,936 29,987 17,686 Interest expense (11,540) 2,299 (25,135) (23,848) (21,125) Miscellaneous revenue - (18,610) - - - Miscellaneous expense (20,271) (9,533) (64,491) (17,649) (20,574) Total Nonoperating Revenues/Expenses $ (4,933) $ 22,870 $ (39,690) $ (11,510) $ (24,013)

TOTAL NET ASSETS, BEGINNING OF YEAR $ 9,595,400 $ 9,331,624 $ 9,047,836 $ 8,809,085 $ 8,487,437

NET INCOME $ 252,657 $ 263,776 $ 283,787 $ 238,751 $ 321,648

TOTAL NET ASSETS, END OF YEAR $ 9,848,057 $ 9,595,400 $ 9,331,624 $ 9,047,836 $ 8,809,085

Source: Princeton Electric Plant Board Audited Financial Statements

D-12

APPENDIX E

KENTUCKY MUNICIPAL POWER AGENCY POWER SYSTEM REVENUE BONDS, SERIES 2010

Audited Financial Statements of the Paducah Electric Plant Board For Fiscal Years Ended June 30, 2009 and 2008

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APPENDIX F

KENTUCKY MUNICIPAL POWER AGENCY POWER SYSTEM REVENUE BONDS, SERIES 2010

Audited Financial Statements of the Princeton Electric Plant Board For Fiscal Years Ended June 30, 2009 and 2008

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APPENDIX G

KENTUCKY MUNICIPAL POWER AGENCY POWER SYSTEM REVENUE BONDS, SERIES 2010

Demographic and Economic Data of KMPA’s Members

[This Page Intentionally Left Blank] PADUCAH, KENTUCKY (McCracken County)

Paducah, the county seat of McCracken County, is the major economic center and the largest urban area in west Kentucky’s Jackson Purchase Region. Paducah is located at the confluence of the Ohio and Tennessee Rivers (the head of the Tennessee-Tombigbee Waterway) approximately 48 river miles east of the confluence of the Ohio and Mississippi Rivers. Paducah is located 139 miles northwest of Nashville, Tennessee; 167 miles southeast of St. Louis Missouri; and 215 miles southwest of Louisville, Kentucky. Paducah had an estimated 2008 population of 25,521 and is a “Hall of Fame” Kentucky Certified City.

McCracken County, with a land area of 251 square miles, had an estimated 2009 population of 64,640 persons.

The Economic Framework

The total number of McCracken County residents employed in 2008 averaged 29,647. In 2008, manufacturing firms in the county reported 3,516 employees; transportation, trade and utilities provided 9,787 jobs; 16,673 people were employed in service occupations; informational, financial activities and public administration accounted for 3,238 employees; and contract construction firms provided 2,127 jobs.

Labor Supply

There is a current estimated labor supply of 12,720 persons available for industrial jobs in the labor market area. In addition, from 2009 through 2012, 13,674 young persons in the area will become 18 years of age and potentially available for industrial jobs.

Transportation

Major “AAA”- rated trucking highways serving the city include Interstate 24 and U.S. Highways 45, 60, and 62. The Interstate 24 Downtown Loop provides direct access from downtown to Interstate 24. Twenty-five trucking companies provide interstate and/or intrastate service to Paducah. Three maintain local terminals. The Paducah & Louisville Railway provides main line rail service to Paducah. Connections with the Illinois Central Railroad and the Burlington Northern Railroad are located near Paducah. The Barkley Regional Airport, six miles west of Paducah, provides scheduled commuter airline service. The Paducah-McCracken County Riverport Authority operates a public riverport at the confluence of the Ohio and Tennessee Rivers. Major manufacturing employers in McCracken County (as of January 2010) are listed below:

Average Firm Product Employment

United States Enrichment Corp. Government & uranium enrichment 1,178 Lynx Services LLC Customer service center 265 Credit Bureau Systems Credit reporting, collections and billing 252 services US Food Service of Paducah Food service distribution 249 Computer Services, Inc. Headquarters and provider of data 230 processing services, and supplies for banks Western Kentucky Navigation Towboat company 220 Henry A. Petter Supply Co. Headquarters, industrial supply/distribution 214 Dippin' Dots, Inc. Ice cream & yogurt 169 Paducah & Louisville Railway Railroad headquarters 150 VMV Re-manufactured locomotives and 121 component parts ______Sources: Kentucky Cabinet for Economic Development, Division of Research and Planning

G-1

McCracken County Economic Statistics 2005-2009

Median Average Per Capita Family Weekly Unemployment Civilian Year Income Income Wage Rate Employment Labor Force 2009 (1) $54,600 (1) 8.8% (2) 28,909 (2) 31,703 (2) 2008 (1) 52,900 $675.69 5.8 29,647 31,462 2007 $36,226 50,500 644.48 4.9 30,238 31,809 2006 34,385 51,000 625.83 5.4 29,501 31,200 2005 32,472 50,600 601.61 6.0 29,348 31,235 ______Source: Kentucky Department of Economic Development (1) Data not available. (2) Preliminary, as of November 2009.

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G-2 PRINCETON, KENTUCKY (Caldwell & Lyon Counties)

Princeton, the county seat of Caldwell County, is located in the Pennyrile Region of Western Kentucky just east of Lake Barkley, the Land Between the Lakes and the vast Western Waterland area. Princeton, with an estimated 2008 population of 6,398, is located 100 miles northwest of Nashville, Tennessee; 174 miles southwest of Louisville, Kentucky; and 219 miles southeast of St. Louis, Missouri.

Caldwell and Lyon Counties together had an estimated population of 20,791 in 2009.

The Economic Framework

Firms in the labor market area employed 9,353 people in 2008. Manufacturing firms in the County reported 968 employees; trade, transportation and utilities provided 1,091 jobs; 787 people were employed in service occupations; informational, financial activities and public administration accounted for 1084 employees; and contract construction firms provided 203 jobs.

Transportation

Major highways serving Princeton include the Western Kentucky Parkway, U.S. Highway 62, and Kentucky Route 293. An interchange of Interstate 24 is located 13 miles west of the city. Twenty-two trucking companies provide interstate and/or intrastate service to Princeton. The Paducah and Louisville Railway and the Tradewater Railway provide rail service to Princeton. The nearest commercial airline service is available at Barkley Regional Airport near Paducah, Kentucky, 55 miles west. The Princeton-Caldwell County Airport maintains a 3,000-foot paved runway.

Labor Supply

There is a current estimated labor supply of 22,318 persons available for industrial jobs in the labor market area. In addition, from 2009 through 2012, 21,653 young persons in the area will become 18 years of age and potentially available for industrial jobs. Major employers in Princeton (as of January 2010) are listed below:

Average Firm Product Employment Bremner Food Group, Inc. Cookies & crackers 580 Hydro-Gear LP Designs & manufactures hydrostatic pumps 62 Transmissions & trans-axles for the lawn & garden industry Special Metals Powder Division Powdered metals and consolidations 58 Exel Processing of plastics & chemicals 42 Princeton Finishing, Inc. Cotton athletic sock finishing 34 Bodycote Imt Inc. HIP (Hot isostatic pressing) 24 Trans Industries Plastics LLC Plastic injection moldings 22 ______Sources: Kentucky Cabinet for Economic Development

G-3 Princeton, Kentucky (Caldwell and Lyon Counties) Economic Statistics 2005-2009

Per Capita Median Family Average Weekly Year Income Income Wage Caldwell Lyon Caldwell Lyon Caldwell Lyon 2009 (1) (1) $45,500 $51,500 (1) (1) 2008 (1) (1) 43,800 49,900 $556.73 $473.92 2007 $27,498 $24,760 42,000 47,700 542.13 446.73 2006 26,516 23,537 42,100 47,800 519.58 424.15 2005 25,572 22,450 40,100 47,700 522.58 417.85

Unemployment Civilian Labor Year Rate Employment Force Caldwell Lyon Caldwell Lyon Caldwell Lyon 2009 10.0% (2) 12.8% (2) 6,033 (2) 2,920 (2) 6,703 (2) 3,347 (2) 2008 6.6 7.6 6283 3,070 6726 3,324 2007 5.4 6.4 6295 3138 6656 3353 2006 5.2 6.6 6375 3,104 6725 3,325 2005 6.0 7.4 5990 2,972 6374 3,209

______Source: Kentucky Department of Economic Development. (1) Data not available. (2) Preliminary, as of December 2009.

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G-4

APPENDIX H

KENTUCKY MUNICIPAL POWER AGENCY POWER SYSTEM REVENUE BONDS, SERIES 2010

Definitions and Summary of Certain Provisions of the Indenture and the Form of Power Sales Agreement

[This Page Intentionally Left Blank] DEFINITIONS AND SUMMARY OF CERTAIN PROVISIONS OF THE INDENTURE

The following is a summary of the Indenture. The summary does not purport to set forth all of the provisions of such document, to which reference is made for the complete and actual terms thereof.

DEFINITIONS

Set forth below are summary definitions of certain terms used in the summary of the Indenture contained in the Official Statement.

"Act" means Sections 96.550 to 96.901of the Kentucky Revised Statutes, as amended.

"Annual Budget" means the budget adopted by the Issuer at the beginning of each Fiscal Year, as the same may be amended from time to time.

"Assumed Amortization Period" means, with respect to any Indebtedness the principal and interest requirements of which are to be recast for purposes of a calculation of the Debt Service Coverage Ratio, the period of time determined, at the election of the Issuer, with the consent of the Bond Insurer, pursuant to either paragraph (a) or paragraph (b) below:

(a) twenty-five (25) years; or

(b) the period of time, not exceeding twenty-five (25) years, set forth in an opinion delivered to the Trustee of an investment banker selected by the Issuer and experienced in underwriting indebtedness of the type being recast, or of another Person selected by the Issuer and experienced in the issuance and sale of indebtedness of such type, as being the maximum period of time over which indebtedness having comparable terms and security issued or incurred by municipal utilities of comparable credit standing would, if then being offered, be marketable on reasonable and customary terms.

"Assumed Interest Rate" means, with respect to any Indebtedness the principal and interest requirements of which are to be recast for purposes of a calculation of the Debt Service Coverage Ratio, the rate per annum determined in accordance with the applicable paragraph set forth below:

(a) with respect to Variable Rate Indebtedness proposed to be incurred, the Projected Rate;

(b) with respect to Variable Rate Indebtedness then Outstanding, 100% of the weighted average annual interest rate borne by such Variable Rate Indebtedness during the 12-month period ending on the date of calculation, or with respect to Variable Rate Indebtedness issued during such 12-month period, 125% of the initial rate borne by such Variable Rate Indebtedness; or

(c) with respect to Indebtedness then Outstanding and not described in either clause (a) or clause (b) above, the Projected Rate.

"Attributes" has the meaning given that term in the Power Sales Agreement.

"Authorized Denominations" means $5,000 or any integral multiple thereof provided that any amount shall be an Authorized Denomination if such amount results from the redemption of Bonds pursuant to the Indenture.

"Authorized Investments" means any of the following:

H-1 (1) direct obligations of the United States of America (including obligations issued or held in book-entry form on the books of the Department of the Treasury of the United States of America) or obligations the timely payment of the principal of and interest on which are fully guaranteed by the United States of America, including instruments which are rated in one of the two highest Rating Categories by a Rating Agency evidencing an ownership interest in securities described in this clause (1);

(2) obligations, debentures, notes or other evidences of indebtedness issued or guaranteed by any of the following:

Federal Home Loan Bank System, Export-Import Bank of the United States, Farmers Home Administration; Merchant Marine Bonds; Federal Financing Bank, Federal Farm Credit Banks; Bank for Cooperatives; Federal Land Banks, Government National Mortgage Association, Federal National Mortgage Association; Tennessee Valley Authority; Federal Home Loan Mortgage Corporation; Federal Housing Administration; General Services Administration; U.S. Maritime Administration; U.S. Department of Housing and Urban Development; or Resolution Funding Corp.;

(3) repurchase agreements (including those of the Trustee or its affiliates) rated in one of the three highest Rating Categories by a Rating Agency and fully secured by collateral security described in clause (1) or (2) of this definition or any other collateral authorized by Kentucky law for repurchase agreements, which collateral (a) is held by the Trustee or a third party agent during the term of such repurchase agreement, (b) is not subject to liens or claims of third parties and (c) has a market value (determined at least once every fourteen days) at least equal to the amount so invested;

(4) certificates of deposit of, or time deposits in, any bank (including the Trustee or its affiliates) or savings and loan association (a) the debt obligations of which (or in the case of the principal bank of a bank holding company, the debt obligations of the bank holding company of which) have been rated at least equal to the rating assigned to the Bonds by each Rating Agency then rating the Bonds or (b) which are fully insured by the Federal Deposit Insurance Corporation;

(5) shares in any investment company registered under the Federal Investment Governmental Agency Act of 1940 whose shares are registered under the Federal Securities Act of 1933 and whose only investments are government securities described in clause (1) or (2) of this definition and repurchase agreements fully secured by government securities described in clause (1) or (2) of this definition and/or other obligations rated in the highest Rating Category by a Rating Agency;

(6) tax-exempt obligations of any state of the United States, or political subdivision thereof, which are rated one of the two highest Rating Categories by a Rating Agency or mutual funds invested only in such obligations and which are rated in one of the two highest Rating Categories by a Rating Agency;

(7) units of a taxable or nontaxable government money-market portfolio composed of U.S. Government obligations and repurchase agreements collateralized by such obligations;

(8) commercial paper rated the highest Rating Category by a Rating Agency;

(9) corporate notes or bonds with one year or less to maturity rated in one of the two highest Rating Categories by a Rating Agency;

(10) shares of mutual funds, each of which shall have the following characteristics:

(i) the mutual fund shall be an open-end diversified investment company registered under the Federal Investment company Act of 1940, as amended;

H-2 (ii) the management company of the investment company shall have been in operation for at least five (5) years;

(iii) all of the securities in the mutual fund shall be in investments in any one or more of the investments described in (1) and (3) above; and

(iv) the mutual fund shall be rated in one of the two highest Rating Categories by a Rating Agency; or

(11) any other investments permitted by State law.

"Authorized Representative" means, with respect to the Issuer, its Chairman, Vice-Chairman, Treasurer, Secretary, General Manager or any other Person(s) designated as an Authorized Representative of the Issuer.

"Bankruptcy Code" means the United States Bankruptcy Code, as amended from time to time.

"Bond Counsel" means the firm of Rubin & Hays of Louisville, Kentucky, or any other firm of nationally recognized bond counsel, whose members are duly admitted to practice law before the highest court of any state and designated by the Issuer as its bond counsel for the Bonds. Nothing shall preclude the Issuer from designating the same firm as both Tax Counsel and Bond Counsel.

"Bond Fund" means the fund of that name created and established pursuant to Section 4.1.

"Bond Insurance Policy" refers to the municipal bond insurance policy issued by the Bond Insurer guaranteeing the scheduled payment of principal of and interest on the Bonds when due.

"Bond Insurer" means any corporation, association or other entity which is engaged in the business, among other things, of insuring or guaranteeing the payment of the principal of and interest on municipal bond issues, and for the purposes of the Series 2010 Bonds, shall mean Assured Guaranty Municipal Corp. (formerly known as Financial Security Assurance Inc.), a New York stock insurance company, or any successor thereto or assignee thereof.

"Bond Register" means the books for registration of Bonds kept for the Issuer by the Trustee as provided in the Indenture.

"Bond Year" means each one-year period that ends on the date selected by the Issuer. The first and last Bond Years may be short periods. If no date is selected by the Issuer before the earlier of the final maturity date of the Bonds or the date that is five years after the Date of Issue of the Bonds, Bond Years end on each anniversary of the Date of Issue and on the final maturity date of the Bonds.

"Bondowner" means the Owner of any Bond.

"Bonds" means collectively the Series 2010 Bonds, the Prior Bonds and any Parity Bonds.

"Book Entry System" means, with respect to the Bonds, a form or system, as applicable, under which (i) the beneficial ownership interests may be transferred only through a book entry and (ii) physical Bond certificates in fully registered form are registered only in the name of a Depository or its nominee as Holder, with the physical Bond certificates "immobilized" in the custody of the Depository. The Book Entry System maintained by and the responsibility of the Depository and not maintained by or the responsibility of the Issuer or the Trustee is the record that identifies, and records the transfer of the interests of, the owners of book entry interests in the Bonds.

"Business Day" means any day other than (i) a Saturday, (ii) a Sunday, (iii) a day on which banking institutions in the Commonwealth of Kentucky, the State of New York or any state in which the office of the Trustee is located are

H-3 closed as authorized or obligated by law or administrative order or (iv) a day on which the New York Stock Exchange is closed.

"Capacity" has the meaning given that term in the Power Sales Agreement.

"Capacity Share" has the meaning given that term in the Power Sales Agreement.

"Capital Improvement Fund" means the fund of that name created and established pursuant to the Indenture.

"Capital Improvements" means anticipated and unanticipated necessary repairs, renewals, replacements, extensions, renovations, improvements, acquisitions and additions to the Plant.

"Capital Reserve Requirement" refers, as of any particular computation date, to the amount, determined by an Independent Consultant and set forth in the then most recent report of the Independent Consultant to the Issuer and the Trustee, to be held in the Capital Improvement Fund as the amount reasonably anticipated under prevailing standards of sound electric utility management to be necessary for the purpose of providing funds which may be needed for Capital Improvements.

"Certificate, statement, request, direction or order" of the Issuer, a Member or a PSA Signatory means, respectively, a written certificate, statement, request, direction or order signed in the name of the Issuer, the Member or PSA Signatory by an Authorized Representative of the Issuer, the Member or the PSA Signatory, as the case may be. Any such instrument and supporting opinions or representations, if any, may, but need not, be combined in a single instrument with any other instrument, opinion or representation, and the two or more so combined shall be read and construed as a single instrument. If and to the extent required by the Indenture, each such instrument shall include the statements provided for in the Indenture.

"Code" means the Internal Revenue Code of 1986, as amended, or any successor federal income tax statute or code. Any reference to a provision of the Code shall include the applicable regulations of the Department of the Treasury promulgated or proposed with respect to such provision.

"Completion Indebtedness" means any Long-Term Indebtedness or Interim Indebtedness incurred or issued by the Issuer for the purpose of financing the completion of the Project.

"Consultant's Report" means, when used with reference to a Projection, a written statement of an Independent Consultant to the effect that the Independent Consultant has reviewed the Projection, concurs with the calculations reflected therein and believes that the assumptions and rationale upon which the Projection is based are reasonable and appropriate or believes that they are not unreasonable.

"Costs of Issuance Account" means the account of that name in the Project Fund created pursuant to the Indenture.

"Credit Enhanced Indebtedness" shall mean Indebtedness the principal of and interest on which are secured by the proceeds of an irrevocable letter of credit, surety bond, insurance policy or other credit facility or arrangement with a Person who the Issuer is obligated to reimburse for advances made for amounts due on such Credit Enhanced Indebtedness.

"Credit Enhancer" shall mean to a Person who has undertaken to provide moneys necessary for payment to holders of Credit Enhanced Indebtedness.

"Date of Issue" means the date the Bonds are issued and delivered to the Underwriter.

"Debt Service Coverage Ratio" means for the period in question the ratio of Net Revenues to the Maximum Annual Debt Service; provided, however, that for purposes of calculating such ratio:

H-4 (a) principal and interest requirements on Long-Term Indebtedness, or portions thereof, shall not be included in the computation of the Maximum Annual Debt Service until the Fiscal Year in which such principal or interest, or portions thereof, first becomes payable from sources other than amounts deposited in trust, escrowed or otherwise set aside exclusively for the payment thereof at the time of incurrence of Indebtedness (including without limitation capitalized interest and accrued interest so deposited into trust, escrowed or otherwise set aside) with the Trustee or another Person approved by the Trustee;

(b) any Long-Term Indebtedness having a single principal maturity and no sinking fund redemption requirements, or having a principal amount due in any Fiscal Year which exceeds an amount equal to 200% of the maximum principal amount of such Long-Term Indebtedness that would have become due (whether at maturity or pursuant to sinking fund redemption requirements) in such Fiscal Year if such Indebtedness Outstanding on the date of calculation had been amortized on a level debt service basis from the date of calculation over the stated term of such Indebtedness shall be deemed to bear interest at the Assumed Interest Rate determined in accordance with paragraph (c) of the definition of Assumed Interest Rate and shall be deemed to be amortized on a level debt service basis over a period equal to the Assumed Amortization Period;

(c) the interest on any Variable Rate Indebtedness shall be calculated in accordance with paragraph (a) of the definition of Assumed Interest Rate;

(d) debt service on Credit Enhanced Indebtedness shall be deemed to include all periodic payments to the Credit Enhancer but shall not be based upon the terms of any reimbursement obligation to the Credit Enhancer except to the extent and for periods during which payments have been required to be made pursuant to such reimbursement obligation due to the Credit Enhancer advancing funds and not being reimbursed; and

(e) any outstanding debt which has been completely defeased shall be excluded.

"Declaration of Acceleration" means a declaration given in accordance with the provisions of the Indenture that all principal of and interest on the Bonds are due and payable immediately.

"Decommissioning Costs" means costs and expenses associated with the decommissioning, remediation, mitigation and closing down of the Project or any portion thereof.

"Decommissioning Fund" means the fund of that name created and established pursuant to the Indenture.

"Decommissioning Reserve Requirement" refers, as of any particular computation date, to the amount, determined by an Independent Consultant and set forth in the then most recent report of an Independent Consultant to the Issuer and the Trustee, to be held in the Decommissioning Fund for the purpose of providing funds which may be needed for Decommissioning Costs.

"Depository" means any securities depository that is a clearing agency under federal law operating and maintaining, with its participants or otherwise, a book entry system to record ownership of book entry interests in the Bonds, and to effect transfers of book entry interests in the Bonds in book entry form, and includes and means initially The Depository Trust Company (a limited purpose trust company), New York, New York.

"Depository Bank" means a bank or trust company, designated by the Issuer, in which one or more of the Funds referred to in the Indenture will be established and maintained; provided, however, that by appropriate action the Issuer, from time to time, may designate a different bank or trust company.

"Determination of Taxability" means the receipt by the Trustee (1) of written notice of any final determination, decision or decree, all applicable appeal periods with respect to which shall have expired, made by the Commissioner or any District Director of the Internal Revenue Service or by any court of competent jurisdiction, or (2) of an opinion

H-5 of Tax Counsel, in either case to the effect that interest on the Tax-Exempt Bonds is not excludable for regular federal income tax purposes under Section 103(a) of the Code from gross income of any Owner of the Tax-Exempt Bonds (other than an Owner who is a substantial user of the Project or related person as defined in the Code) or (3) of notice that, as a result of any amendment, modification, addition or change made in Section 103 or any other provision of the Code or in any regulation or proposed regulation thereunder, or any ruling issued or revoked by the Internal Revenue Service, or any other action taken by the Internal Revenue Service, the Department of the Treasury or any other governmental agency, authority or instrumentality, or any opinion of any federal court or of the United States Tax Court rendered, Tax Counsel is unable to give an opinion that the interest payable on any Tax-Exempt Bond on or after a date specified in such notice is excludable from gross income of the taxpayer named therein (other than any such-taxpayer who is a "substantial user" or a "related person," within the meaning of Section 147(a) of the Code) for regular federal income tax purposes.

"Direct Participant" means a Participant as defined in the Letter of Representations.

"Entitlement Capacity Share" means each Participating Member's Entitlement Percentage of available Capacity associated with the Project. An estimate of the Participating Member's Entitlement Capacity Share is included in the Power Sales Agreement.

"Entitlement Percentage" means with respect to a Participating Member, the percentage as set forth for such Participating Member in the Power Sales Agreement, as may be adjusted as provided for pursuant to the Power Sales Agreement.

"Event of Default" means any of the events specified in the Indenture.

"Excess Capacity" has the meaning given that term in the Power Sales Agreement.

"Final Computation Date" means the date on which all amounts due with respect to the Bonds are actually and unconditionally due, if cash is available at the place of payment, after which date no interest accrues with respect to any of the Bonds. The Final Computation Date for the Bonds will generally be the earlier of (a) the final principal payment date for the Bonds or (b) the date on which the Bonds are redeemed as a whole.

"Financing Expenses" means all expenses of issuing and/or preparing the Bonds or the Indenture, including but not limited to legal, fiscal and printing expenses, the initial fee of the Trustee under the Indenture, or any bank or other agency for collection or administration of the Bonds, advertising expenses, any fees or expenses incurred in connection with the placement of the Bonds by the Underwriter, any premium or rating agency fee paid to a Rating Agency and any and all other similar out-of-pocket expenses.

"Fiscal Year" means the period of twelve complete, consecutive calendar months ending on June 30 of each year.

"Funds" means the funds created and established pursuant to the Indenture.

"General Fund" means the fund of that name created and established pursuant to the Indenture.

"Generally Accepted Accounting Principles" or "GAAP" means those principles of accounting set forth in statements of the Financial Accounting Standards Board or which have other substantial authoritative support and are applicable in the circumstances as of the date of a report, as such principles are from time to time supplemented and amended.

"Governing Body" means, with respect to the Issuer, its board of directors established by the KMPA Interlocal Agreement and for a Member or any Person, the board of directors, board of commissioners or board of trustees of such Member or Person, or if there shall be no board of trustees, board of commissioners or board of directors, then such person or body which pursuant to law or the organizational documents of the Member or Person is vested with powers

H-6 similar to those vested in a board of trustees, board of commissioners or a board of directors; the term also encompasses any committee empowered to act on behalf of such board of directors, board of trustees or board of commissioners.

"Government Obligations" means direct obligations of the United States of America (including obligations issued or held in book-entry form on the books of the Department of the Treasury of the United States of America) or obligations the timely payment of the principal of and interest on which are fully guaranteed by the United States of America.

"Holder" or "Bondholder" means the Person in whose name a Bond is registered on the Bond Register.

"Indebtedness" means, without duplication, (a) all indebtedness of the Issuer incurred for borrowed moneys or which has been incurred or assumed in connection with the acquisition, construction, development or operation of the Project; (b) all indebtedness for borrowed moneys, no matter how created, secured by the Project or the Power Sales Agreements; and (c) the liability of the Issuer under any lease of real or personal property which is properly capitalized on the balance sheet of the Issuer in accordance with GAAP and which is integral to the ownership or the operation of the Project.

"Indenture" means the Trust Indenture, as originally executed or as it may from time to time be supplemented, modified or amended by any Supplemental Indenture.

"Independent Certified Public Accountant" means an Independent Person of national recognition and experience qualified as a certified public accountant.

"Independent Consultant" means an Independent Person of national recognition and experience appointed by the Issuer and not objected to by the Trustee, which objection shall be reasonable, as lacking the skill or the experience necessary to render the particular opinions and reports required by the Indenture.

"Independent Engineer" means an Independent Person qualified as a licensed professional engineer with an expertise in electric power and energy generation systems.

"Independent Insurance Consultant" means an Independent Person, appointed by the Issuer and not objected to by the Trustee, which objection shall be reasonable, as lacking (a) the qualifications to survey risks and to recommend insurance coverage for facilities of the type or types operated by the Issuer and services and organizations engaged in like operations and (b) a favorable reputation for skill and experience in such surveys and such recommendations, and who may be the principal broker or agent with whom the Issuer transacts business if he otherwise meets the qualifications.

"Independent Person" means either (a) a firm or Person designated by the Issuer and reasonably acceptable to the Trustee or (b) a firm or person designated by the Issuer and in which no partner (treating a shareholder of a professional association which is a partner as though such shareholder were such a partner), director, officer or employee is a director, officer or employee of the Issuer or a Member.

"Indirect Participant" means a Person utilizing the Book Entry System of the Depository by, directly or indirectly, clearing through or maintaining a custodial relationship with a Participant.

"Installment Computation Date" means the last day of the fifth Bond Year and of each succeeding fifth Bond Year thereafter.

"Interest Accrual Date" means (1) with respect to the first Interest Payment Date, the Date of Issue and (2) thereafter, each Interest Payment Date in respect thereof, other than the last such Interest Payment Date.

H-7 "Interest Payment Date" means March 1 and September 1 of each year, commencing on September 1, 2010, provided, that if any Interest Payment Date does not fall on a Business Day, the Interest Payment Date shall be the next succeeding Business Day.

"Interim Indebtedness" means Indebtedness incurred or assumed in anticipation of being refinanced or refunded with Long-Term Indebtedness.

"Investment Earnings" means all earnings derived from the investment of money held in any of the Funds.

"Issuer" or "KMPA" means the Kentucky Municipal Power Agency, a joint public agency of the Commonwealth of Kentucky.

"Issuer's Project Share" means the undivided ownership interest of the Issuer as a tenant in common in the Project, which undivided interest shall be initially equal to 7.82% of the Project and the power and energy generated by the Project.

"KMPA Interlocal Agreement" shall mean the Interlocal Cooperation Agreement creating the Kentucky Municipal Power Agency, dated February 7, 2005, by and between the Electric Plant Board of the City of Paducah, Kentucky and the Electric Plant Board of the City of Princeton, Kentucky, as founding Members establishing the Kentucky Municipal Power Agency, as amended and supplemented.

"Letter of Representations" means the Blanket Issuer Letter of Representations from the Issuer to The Depository Trust Company, as in effect from time to time.

"Long-Term", when used in connection with Indebtedness, means Indebtedness having an original maturity greater than one year or renewable at the option of the obligor for a period greater than one year from the date of original incurrence or issuance thereof, which shall not include the current portion of such Long-Term Indebtedness as determined in accordance with GAAP.

"Maximum Annual Debt Service" means the largest amount of principal and interest on Long-Term Indebtedness computed in accordance with clauses (a) through (e) of the definition of Debt Service Coverage Ratio due in any Fiscal Year ending on or after the date of determination.

"Member" shall mean any agency, unit of government, or political subdivision within or without the State which has entered or shall enter into the KMPA Interlocal Agreement for such period of time as said agency, unit of government, or political subdivision shall remain a party to the KMPA Interlocal Agreement.

"Monthly Project Costs" has the meaning set forth in the Power Sales Agreement.

"Moody's" means Moody's Investors Service, a corporation organized and existing under the laws of the State of Delaware, its successors and assigns.

"Net Revenues" means, with respect to any period of calculation, Revenues less Operating Expenses, other than (i) expenses incurred with respect to property the acquisition of which has been financed from the proceeds of Indebtedness, (ii) depreciation, (iii) amortization and (iv) interest on Long-Term Indebtedness; provided that no determination thereof shall take into account: (a) material balances and transactions between the Issuer and its Members; (b) insurance proceeds payable as a result of casualty or other similar circumstances (other than the proceeds of business interruption insurance); (c) gains and losses from the sale of capital assets and from other extraordinary items; and (d) gains and losses attributable to refundings, advance refundings and other early extinguishment of Indebtedness.

"Officer's Certificate" means, in the case of the Issuer, a certificate signed by the Chairman, Vice Chairman, Secretary or Treasurer thereof or other Person in which the power to act on behalf of the Issuer is vested by subsequent

H-8 action of its Governing Body; and, in the case of any Member, the Chairman or Vice Chairman thereof, or other Person in which the power to act on behalf of the Member is vested by subsequent action of its Governing Body.

"Official Statement" means any official statement, offering circular, private placement memorandum or other disclosure document pursuant to which the Bonds are initially sold.

"Operating Expenses" means any (i) expense of the Issuer related to the operations, management and maintenance of the Project, properly charged as an operating expense in accordance with GAAP, including but not limited to salaries; wages; costs of maintenance, materials and supplies; insurance; maintenance expenditures; tax equivalent payments; transmission costs; fees and costs of paying agents, attorneys, consultants and others; costs associated with studies and reports; and permit fees all of which relate to the Project or the administration of the Power Sales Agreements and (ii) payments required to be made by the Issuer to the Capital Improvement Fund as provided in the Indenture.

"Operating Fund" means the fund of that name created and established pursuant to the Indenture.

"Operating Reserve Fund" means the fund of that name created and established pursuant to the Indenture.

"Operating Reserve Requirement" refers, as of any particular computation date, to the amount, determined by an Independent Consultant and set forth in the then most recent report of the Independent Consultant to the Issuer and the Trustee, to be held in Operating Reserve Fund for the purpose of providing funds which may be needed for unexpected Operating Expenses or maintenance costs associated with the Project.

"Opinion of Bond Counsel" means an opinion in writing signed by Rubin & Hays or legal counsel which shall be nationally recognized as expert in matters pertaining to the validity of obligations of governmental issuers and the exemption from Federal income taxation of interest on such obligations, and who shall not be unsatisfactory to the Trustee as lacking either the skill or experience necessary to render the opinions required.

"Opinion of Counsel" means an opinion in writing signed by (a) an attorney or firm of attorneys who may be an employee of or counsel to the Issuer or any Member and who shall not be unsatisfactory to the Trustee as lacking either the skill or experience necessary to render the opinions required, or (b) an attorney or firm of attorneys who neither are employees of, nor counsel to, the Issuer or any Member.

"Outstanding", when used as of any particular time with reference to Bonds, means all Bonds delivered by the Trustee under the Indenture or the Prior Indenture except (1) Bonds cancelled by the Trustee or surrendered to the Trustee for cancellation; (2) Bonds with respect to which all liability of the Issuer shall have been discharged in accordance with the Indenture or Prior Indenture, including Bonds (or portions thereof) referred to in the Indenture or Prior Indenture, and (3) Bonds for the transfer or exchange of or in lieu of or in substitution for which other Bonds shall have been authenticated and delivered by the Trustee pursuant to the Indenture or the Prior Indenture.

"Owner", whenever used herein with respect to a Bond, means the Person in whose name such Bond is registered on the Bond Register.

"Parity Bonds" means bonds or Completion Indebtedness issued in the future pursuant to the provisions of the Indenture, which shall rank on a basis of parity with the Bonds.

"Participating Member" means each entity that is specified in the Power Sales Agreement, and which enters into a Power Sales Agreement.

"Paying Agent" means the Trustee and any bank or trust company designated by the Trustee to act in the capacity of a paying agent on the Bonds.

H-9 "Person" means an individual, corporation, firm, association, partnership, trust, or other legal entity or group of entities, including a governmental entity or any agency or political subdivision thereof.

"Power Sales Agreement" means a Power Sales Agreement between the Issuer and a PSA Signatory or other entity, as originally executed and as it may from time to time be supplemented, modified or amended in accordance with the terms thereof and of the Indenture, which has been entered into and pledged pursuant to the Indenture.

"Principal and Interest Account" means the account of that name in the Bond Fund established pursuant to the Indenture.

"Principal Office of the Trustee" means the corporate trust office of the Trustee established from time to time by written notice sent by the Trustee to the Issuer and to each Owner.

"Prior Bonds" refers to the Outstanding Series 2007 Bonds.

"Prior Indenture" refers to the Series 2007 Indenture.

"Project" shall mean the "mine mouth," pulverized coal-fueled power generating facility on a site in Washington, Randolph and St. Clair Counties, Illinois, including but not limited to (i) a coal-fired, steam-electric generating station utilizing pulverized coal boiler technology and comprised of: two boilers with low NOx burners and electrical generating units; coal storage and handling equipment; an emissions control system consisting of selective catalytic reduction, dry electrostatic precipitators ("DESP"), wet limestone scrubbers and a wet electrostatic precipitator ("WESP"); two cooling towers; water storage facilities; transmission facilities to interconnect the Project with the grid at a delivery point; a railroad spur to service the facility; a water pipeline to the Kaskaskia River; facilities for the disposal of coal combustion waste from the facilities; and associated power plant facilities and equipment; and (ii) coal reserves to be accessed via one or more mine portals and to have recoverable raw coal reserves; coal storage handling and conveying equipment; and mine facilities for the coal reserves and related mining equipment.

"Project Account - BABs" means the account of that name in the Project Fund created pursuant to the Indenture.

"Project Account - Taxable" means the account of that name in the Project Fund created pursuant to the Indenture.

"Project Account - Tax-Exempt" means the account of that name in the Project Fund created pursuant to the Indenture.

"Project Costs" means the costs associated with the Issuer acquiring, developing, constructing and equipping the Issuer's Project Share of the Project.

"Project Fund" means the Fund of that name created pursuant to the Indenture.

"Projected Rate" means the Bond Buyer "Revenue Bond Index", as then published most recently by The Bond Buyer, New York, New York, or, if such index is no longer available, such index for comparable thirty year maturity tax-exempt revenue bonds as may be certified to the Trustee by a firm of investment bankers or a financial advisory firm.

"Projection" means pro forma projected or forecasted financial statements of the Issuer or a proposed project of the Issuer for a future period, including balance sheets as of the end of such period and statements of operation and changes in cash flows for such period, accompanied by a statement of the relevant assumptions and rationale upon which the pro forma financial statements are based.

"PSA Default Event" means any of the events specified in the Power Sales Agreement.

"PSA Payments" means the payments required to be made to the Issuer pursuant to a Power Sales Agreement.

H-10 "PSA Signatory" means the Person who is obligated to purchase power from the Issuer under a Power Sales Agreement.

"PSA Signatory Account" means each separate and distinct account in the General Fund established and created in the Indenture in the name of and for benefit of each PSA Signatory.

"Rate Stabilization Fund" means the fund of that name created and established pursuant to the Indenture.

"Rate Stabilization Requirement" refers, as of any particular computation date, to the amount, determined by an Independent Consultant and set forth in the then most recent report of the Independent Consultant to the Issuer and the Trustee, to be held in the Rate Stabilization Fund for the purpose of providing funds to mitigate and stabilize the costs to the PSA Signatories of the fluctuations in wholesale power costs or increased costs as a result of shortages or outages of power and energy anticipated to be generated by the Project.

"Rating Agency" means S&P, if S&P then maintains a rating on the Bonds, or Moody's, if Moody's then maintains a rating on the Bonds.

"Rating Category" means the generic rating categories of the Rating Agency, without regard to any refinement or gradation of such rating category by a numerical modifier or otherwise.

"Rebate Amount" means the amount, as of each Installment Computation Date and as of the Final Computation Date, required to be paid to the United States of America pursuant to Section 148(f) of the Code within 60 days after such Installment Computation Date or Final Computation Date.

"Rebate Analyst" means a firm of certified public accountants, nationally-recognized bond counsel or other specialist in the calculation of arbitrage rebate.

"Rebate Fund" means the Fund of that name created pursuant to the Indenture.

"Record Date" means the 15th day of the calendar month immediately preceding the Interest Payment Date (or the preceding Business Day if the 15th is not a Business Day).

"Recovery Act" shall mean the American Recovery and Reinvestment Act of 2009, Pub. L. No. 111-5, 123 stat. 115 (2009).

"Redemption Account" means the account of that name in the Bond Fund established pursuant to the Indenture.

"Related Documents" means the Power Sales Agreements.

"Required Reserve" refers to an amount, as of any particular date of computation, equal to the lesser of (i) 10% of the proceeds of the Bonds, (ii) 100% of the greatest amount required in the then current or any future Bond Year to pay the principal and interest requirements on the Outstanding Bonds or (iii) 125% of the average of the annual principal and interest requirements on the Outstanding Bonds.

"Requisition Certificate" means the Requisition for Payment of Project Costs in substantially the form set forth as Exhibit C attached to the Indenture.

"Reserve Account Insurance Policy" refers to an insurance policy issued by or approved in writing by the Bond Insurer guaranteeing the payment of whatever reserve account or commitment related thereto is described in such insurance policy.

"Reserve Fund" means the fund of that name created and established pursuant to the Indenture.

H-11 "Reserve Fund Withdrawal" means a withdrawal of moneys from the Reserve Fund to pay the principal of and interest on the Bonds.

"Resolution" means the Resolution enacted by the Issuer, approving the execution of the Indenture and authorizing the issuance of the Series 2010 Bonds.

"Retained Rights" means the rights retained by the Issuer under the Power Sales Agreements that are not expressly assigned to the Trustee under the Indenture.

"Revenue Fund" means the fund of that name created and established pursuant to the Indenture.

"Revenues" means (i) all amounts received by the Issuer or by the Trustee for the account of the Issuer pursuant or with respect to any Power Sales Agreement, including, without limiting the generality of the foregoing, PSA Payments (including both timely and delinquent payments and any late charges, paid from any source), prepayments, proceeds derived from the Power Sales Agreement; (ii) all proceeds or revenues generated by the sale of all or a portion of the Issuer's Project share; (iii) the proceeds of the sale of any Project assets or attributes and (iv) all interest, profits or other income derived from the investment of amounts in any of the Funds or accounts established pursuant to the Indenture (except the Rebate Fund).

"S&P" means Standard & Poor's Ratings Services, a division of McGraw-Hill, Inc., a corporation organized and existing under the laws of the State of New York, its successors and assigns.

"Series 2007 Bonds" means collectively the Series 2007A Bonds and the Series 2007B Bonds.

"Series 2007 Indenture" means the Trust Indenture, dated as of September 1, 2007, by and between the Issuer and the Trustee, as amended and supplemented from time to time.

"Series 2007A Bond" or "Series 2007A Bonds" means the Kentucky Municipal Power Agency Power System Revenue Bonds (Prairie State Project), Series 2007A, authorized by, and at any time Outstanding, pursuant to the Series 2007 Indenture.

"Series 2007B Bond" or "Series 2007B Bonds" means the Kentucky Municipal Power Agency Taxable Power System Revenue Bonds (Prairie State Project), Series 2007B, authorized by, and at any time Outstanding, pursuant to the Series 2007 Indenture.

"Series 2010 Bonds" means collectively the Series 2010A Bonds, the Series 2010B Bonds and the Series 2010C Bonds.

"Series 2010A Bond" or "Series 2010A Bonds" means the Kentucky Municipal Power Agency Tax-Exempt Power System Revenue Bonds (Prairie State Project), Series 2010A, authorized by, and at any time Outstanding, pursuant to the Indenture.

"Series 2010B Bond" or "Series 2010B Bonds" means the Kentucky Municipal Power Agency Taxable (Build America Bonds - Direct Pay) Power System Revenue Bonds (Prairie State Project), Series 2010B, authorized by, and at any time Outstanding, pursuant to the Indenture.

"Series 2010C Bond" or "Series 2010C Bonds" means the Kentucky Municipal Power Agency Taxable Power System Revenue Bonds (Prairie State Project), Series 2010C, authorized by, and at any time Outstanding, pursuant to the Indenture.

"Short-Term", when used in connection with Indebtedness, means having an original maturity less than or equal to one year and not renewable at the option of the Issuer for a term greater than one year beyond the date of original incurrence or issuance.

H-12 "Special Record Date" means the date established by the Trustee pursuant to Section 2.1 as a record date for the payment of defaulted interest on Bonds.

"State" means the Commonwealth of Kentucky.

"Supplemental Indenture" means any indenture hereafter duly authorized and entered into between the Issuer and the Trustee, supplementing, modifying or amending the Indenture; but only if and to the extent that such Supplemental Indenture is specifically authorized hereunder.

"Tax Counsel" means the firm of Rubin & Hays of Louisville, Kentucky, or any other firm of nationally recognized tax counsel, whose members are duly admitted to practice law before the highest court of any state and designated by the Issuer as its tax counsel for the Bonds. Nothing shall preclude the Issuer from designating the same firm as both Tax Counsel and Bond Counsel.

"Taxable Bonds" means, collectively, the Series 2007B Bonds, the Series 2010B Bonds and the Series 2010C Bonds.

"Tax-Exempt Bonds" means, collectively, the Series 2007A Bonds and the Series 2010A Bonds.

"Temporary Bond" or "Temporary Bonds" means the Bonds described and authorized in the Indenture.

"Trust Estate" means the trust estate pledged by the Issuer and described in the Granting Clauses of the Indenture.

"Trustee" means U.S. Bank National Association, Louisville, Kentucky, or its successor, as trustee and paying agent hereunder as provided in the Indenture.

"UCC" means the Uniform Commercial Code of the State codified in Chapter 355 of the Kentucky Revised Statutes.

"Underwriter" means, collectively, the initial purchasers of the Bonds.

"Variable Rate Indebtedness" means any portion of Indebtedness the rate of interest on which is not established at the time of incurrence as one or more numerical rates applicable throughout the term thereof or for specified periods during the term thereof, with the result that at the time of incurrence the numerical rate of interest which will be in effect during any portion of the term thereof cannot be determined.

THE INDENTURE

Trust Estate

The Issuer, in consideration of the premises and the acceptance by the Trustee of the trusts created in the Indenture and of the purchase and acceptance of the Bonds by the Owners thereof, to secure the payment of the principal of and premium, if any, and interest on the Bonds according to their tenor and effect, and to secure the performance and observance by the Issuer of all the covenants expressed or implied in the Indenture and in the Bonds, in the Indenture does grant, bargain, sell, convey, pledge and assign unto and grant a security interest to the Trustee, and to its successors in trust and assigns forever, a security interest in the following described property (but reserving its Retained Rights):

(a) All Revenues and all of the Issuer's rights, title and interest in and to the Power Sales Agreements, including, but without limiting the generality of the foregoing, the Issuer's rights, title, and interest in and to the Revenues and the present and continuing right to make claim for, collect and receive any of the money, income, revenues, issues, profits and other amounts payable or receivable thereunder, to bring actions and proceedings thereunder or for the

H-13 enforcement thereof, and to do any and all things which the Issuer or any other person is or may become entitled to do under the Power Sales Agreements, but reserving, however, to the Issuer its Retained Rights.

(b) All rights, title and interest of the Issuer, if any, whether now or hereafter in effect, respecting:

(i) the Issuer's undivided fee interest in the Project;

(ii) the right of the Issuer to receive power and energy generated by the Project;

(iii) all choses in action and all choses in possession now or hereafter existing to the benefit of or arising from the benefit of the Issuer with respect to the Bonds (except for the Issuer's Retained Rights); and

(iv) all proceeds of all the foregoing.

(c) All funds and accounts established under the Indenture and the investments thereof, if any, and money, securities and obligations therein (subject to disbursements from any such fund or account upon the conditions set forth in the Indenture); and

(d) All money and securities from time to time held by the Trustee under the terms of the Indenture and any and all other real or personal property of every name and nature concurrently herewith or from time to time hereafter by delivery or by writing of any kind pledged or assigned as and for additional security under the Indenture, by the Issuer or by anyone in its behalf or with its written consent, to the Trustee, which is authorized under the Indenture to receive any and all such property at any and all times and to hold and apply the same subject to the terms thereof.

Authorization

The Bonds are authorized to be issued hereunder to acquire, construct and equip the Project.

The Indenture constitutes a continuing agreement with the Owners from time to time of the Bonds to secure the full payment of the principal of and premium, if any, and interest on all such Bonds subject to the covenants, provisions and conditions contained herein. On the Date of Issue, all conditions, acts and things required by law or by the Indenture to exist, to have happened or to have been performed precedent to or in the issuance of the Bonds shall exist, shall have happened and shall have been performed, and the Bonds, together with all other indebtedness of the Issuer, shall be within every debt and other limit prescribed by law.

Nature of Security

The Bonds are special and limited obligations of the Issuer secured by the Trust Estate and payable only from Revenues deposited in the Bond Fund or otherwise available for the payment of the Bonds under the terms of the Indenture and are not general obligations of the Issuer, of the State, or of any political subdivisions of the State, including any Members. The Bonds and interest and premium, if any, thereon are not payable from taxes and are not a charge against the general credit or taxing power of the State, the Issuer or any Member, or any other municipal corporation, quasi-municipal corporation, political subdivision or agency thereof. No Owner of any Bond shall have the right to compel any exercise of the taxing power of the Issuer, the State, any Member or any other municipal corporation, quasi- municipal corporation, political subdivision or agency thereof to pay the Bonds or the interest or premium, if any, thereon, and the Bonds do not constitute an indebtedness of the Issuer, any Member or the State or a loan of the credit thereof within the meaning of any constitutional or statutory provision other than from the Revenues deposited in the Bond Fund or otherwise available for the payment of the Bonds under the terms of the Indenture.

Parity Bonds

H-14 regardless of the fact that they may be actually issued and delivered at different times, and provided further that the lien and security of and for any bonds or obligations hereafter issued that are payable from the Revenues of the Project shall, except as set out in the Indenture, be subject to the priority of the Bonds as may from time to time be outstanding; provided the Issuer hereby reserves the right and privilege of issuing (i) Completion Indebtedness and/or (ii) any additional bonds from time to time in order to pay the cost of acquiring, whether by purchase or construction of extensions, renovations, improvements and/or betterments to the Project, or for any other lawful purpose of the Issuer. When issued any Parity Bonds shall be payable from the Revenues of the Project ranking on a parity with the Bonds. Parity Bonds, other than the Completion Indebtedness, may be issued by the Issuer only upon compliance with the following conditions and restrictions:

(a) that before any Parity Bonds may be issued there shall have been procured and filed with the Secretary of the Issuer a statement by an Independent Engineer, reciting the opinion, based upon necessary investigation, that on an annual basis the Debt Service Coverage Ratio, based upon (i) the Net Revenues of the Project, including the then contemplated extensions, improvements, renovations and betterments throughout the life of the Bonds and (ii) the Maximum Annual Debt Service on the Outstanding Bonds and the Parity Bonds then proposed to be issued, will, from and after the fifth year after the Parity Bonds are issued, be equal to at least 1.20:1;

(b) that the Issuer reserves the right, exercisable by supplemental indenture, to prescribe additional and more restrictive conditions for the issuance of such additional Parity Bonds, and upon issuance of Parity Bonds in compliance therewith such additional and more restrictive conditions shall be applicable to all such Parity Bonds as may thereafter be issued;

(c) at the time of issuance of such Parity Bonds, the supplemental indenture (and/or other appropriate document) of the Issuer authorizing such Parity Bonds shall contain a provision requiring the funding, completion of the funding, or additional funding of the Reserve Fund with cash and/or a surety bond;

(e) that the principal maturities of such additional Parity Bonds shall be on an Interest Payment Date.

The Net Revenues of said contemplated extensions, improvements, renovations and betterments shall not be included as aforesaid, unless, at the time it is proposed to issue any such Parity Bonds, either (i) a written contract or contracts shall have been entered into for the immediate acquisition of any such betterments, improvements, renovations or extensions to be acquired and for the construction of substantially all of any such extensions, improvements, renovations or betterments to be constructed through application of any of the proceeds of such additional Parity Bonds; or (ii) a certificate shall have been made and filed with the Secretary of the Issuer by an Independent Engineer, meeting the qualifications prescribed in the Indenture, stating that in his, her or their opinion certain described extensions, improvements, renovations, betterments or constructions are needed, that the nature thereof is such that construction can be accomplished more economically or more expeditiously by purchasing materials and utilizing labor or personnel employed directly by the Issuer, and that the estimated costs thereof can be paid in full from the proceeds of the Parity Bonds proposed to be issued, as supplemented by any other funds then available.

H-15 Funds and Accounts

The following Funds and accounts either have ben created and established under the Series 2007 Indenture or shall be created and established as needed to comply with the provisions of the Indenture:

(1) the Revenue Fund;

(2) the Bond Fund, consisting of:

(i) the Principal and Interest Account; and (ii) the Redemption Account;

(3) the Project Fund, consisting of:

(i) the Costs of Issuance Account; (ii) the Project Account - Tax-Exempt; (iii) the Project Account - BABs; and (iii) the Project Account - Taxable;

(4) the Operating Fund;

(5) the Reserve Fund;

(6) the Capital Improvement Fund;

(7) the Rate Stabilization Fund;

(8) the Decommissioning Fund;

(9) the Operating Reserve Fund;

(10) the General Fund consisting of:

(i) one or more PSA Signatory Accounts; and

(11) if necessary, the Rebate Fund.

The Bond Fund, the Project Fund, the Reserve Fund and the Rebate Fund shall be established with and maintained by the Trustee. The other Funds and accounts created under the Indenture shall be established with and maintained by the Issuer with the Trustee and/or a Depository Bank; provided that if there shall be declared an Event of Default under this Indenture, then the Revenue Fund shall be established and maintained with the Trustee. Each Fund and account created under the Indenture shall be established and maintained as a separate and distinct fund or account to be held, managed, invested, disbursed and administered as provided in the Indenture. All money deposited in the Funds and accounts created under the Indenture shall be used solely for the purposes set forth in the Indenture. The Trustee and the Depository Bank, as the case may be, shall keep and maintain adequate records pertaining to each Fund and account, and all deposits thereto and disbursements therefrom.

The Trustee may, in its discretion, establish such additional accounts within any of the Funds maintained by the Trustee, and subaccounts within any of the accounts, as the Trustee may deem necessary or useful for the purpose of identifying more precisely the sources of payments into and disbursements from the Funds maintained by the Trustee and their accounts, or for the purpose of complying with the requirements of the Code, but the establishment of any such account or subaccount shall not alter or modify any of the requirements of the Indenture with respect to a deposit or use of money in the Funds maintained by the Trustee, or result in commingling of funds prohibited thereunder.

H-16 Revenue Fund

All of the Revenues, including the PSA Payments, shall be deposited into the Revenue Fund and shall thereafter be apportioned to the various funds and accounts as set out below and in the Indenture.

Bond Fund - Principal and Interest Account

The Issuer shall deposit in or transfer to the Principal and Interest Account:

(i) on the 20th day of each month from the Revenue Fund (or if the money is being transferred from the Project Fund, then on or before the day prior to the Interest Payment Date), a sum equal to the total of the following:

(1) an amount equal to one-sixth (or such larger amount as is necessary) of the interest to become due on the Bonds then outstanding on the next Interest Payment Date, plus

(2) an amount equal to one-twelfth (or such larger amount as is necessary) of the principal of any Bonds maturing on the next succeeding September 1;

(ii) immediately upon receipt thereof, the net earnings on investments of money in the Principal and Interest Account;

(iii) all money required to be transferred to the Principal and Interest Account from the Project Fund pursuant to the Indenture;

(iv) all money required to be transferred to the Principal and Interest Account from the Redemption Account pursuant to the Indenture; and

(v) all other money required to be transferred to or deposited in the Principal and Interest Account pursuant to any provision of the Indenture or any Power Sales Agreement.

The money and investments in the Principal and Interest Account are irrevocably pledged to and shall be used by the Trustee, from time to time, to the extent required, in the following order of priority:

(y) for the payment of the principal of and interest on Bonds on the next Interest Payment Date or redemption or maturity date; and

(z) for transfer to the Redemption Account funds in the Principal and Interest Account in excess of those necessary for the purposes described in paragraph (y) above, upon written request from an Authorized Representative of the Issuer, for the payment of accrued interest on and principal of any Outstanding Bonds that are optionally redeemed.

Bond Fund - Redemption Account

The Trustee shall deposit in or transfer to the Redemption Account:

(i) immediately upon receipt thereof, all money received by the Trustee from the Issuer or from any other source with written instructions to deposit such amounts in the Redemption Account;

(ii) immediately upon receipt thereof, the net income realized on investments of money in the Redemption Account; and

H-17 (iii) all money required to be transferred to or deposited in the Redemption Account pursuant to any provision of the Indenture.

The money and investments in the Redemption Account are irrevocably pledged and shall be used by the Trustee, from time to time, to redeem Bonds called for redemption in accordance with the provisions of the Indenture or in accordance with the following paragraph.

Upon receipt of and in accordance with a written request from an Authorized Representative of the Issuer, funds in the Redemption Account in excess of the amount necessary to redeem Bonds for which notice of redemption has been given pursuant to the Indenture shall be used for any one or more of the following purposes:

(y) for the optional redemption of Bonds prior to the maturity thereof pursuant to the Indenture; or

(z) for transfer to the Principal and Interest Account.

Bond Fund - Investment of Money in Bond Fund

Pending application of money in the Bond Fund as set forth in the Indenture, such money shall be invested and reinvested by the Trustee in Authorized Investments pursuant to the Indenture.

In the absence of written direction from the Issuer with respect to investment of moneys held in the Funds, the Trustee is hereby directed to invest funds in money market mutual funds of the Trustee or its affiliates that qualify as Authorized Investments under the Indenture.

Project Fund - Costs of Issuance Account

The Trustee shall deposit in or transfer to the Costs of Issuance Account:

(i) immediately upon receipt thereof, the amounts derived from Bond proceeds required to be deposited therein pursuant to the Indenture; and

(ii) amounts as are received by the Trustee from the Issuer or from any other source (other than proceeds of the Bonds) for purposes of paying the Financing Expenses.

Financing Expenses shall be paid by the Trustee from the Costs of Issuance Account, but only to the extent of the balance therein, within five Business Days following receipt by the Trustee of a written request for payment from an Authorized Representative of the Issuer, accompanied by the statements or billings therefor provided, however, that the Issuer may pay such Financing Expenses in which case the Trustee shall reimburse the Issuer from the Costs of Issuance Account, but only to the extent of the balance therein, within five Business Days of the Trustee's receipt of the written request of an Authorized Representative of the Issuer, accompanied by the statements or billings therefor and evidence that such costs have been paid by the Issuer. All payments made from the Costs of Issuance Account pursuant to a written request for payment from an Authorized Representative of the Issuer shall be presumed to be made properly and the Trustee shall not be required to see to the application of any payments made from the Costs of Issuance Account. Any money remaining in the Costs of Issuance Account after the later of payment of all Financing Expenses (or reimbursement of the Issuer for payment of such expenses), shall be deposited in the Project Account - Tax-Exempt of the Project Fund.

Project Account - Tax Exempt

The Trustee shall deposit in or transfer to the Project Account - Tax- Exempt:

H-18 (i) immediately upon receipt thereof, the amounts derived from Bond proceeds required to be deposited therein pursuant to the Indenture; and

(ii) all amounts required to be transferred to the Project Account - Tax-Exempt from the Costs of Issuance Account pursuant to the Indenture.

The money and investments in the Project Account - Tax-Exempt shall be held in trust by the Trustee and applied in accordance with and subject to the provisions of the Indenture and, pending such application, shall be held for the further security of the Owners of the Bonds until applied as provided herein. Until actually disbursed by the Trustee to or upon the order of the Issuer in accordance with the Indenture, the Issuer shall have no interest in such money and investments.

From the Project Account - Tax-Exempt, the Trustee shall:

(i) transfer to the Principal and Interest Account of the Bond Fund, on or before the day prior to the Interest Payment Date, until the completion of construction of the Project, an amount equal to the interest to become due on the Tax-Exempt Bonds then outstanding on the next Interest Payment Date;

(ii) transfer, if and when directed by the Issuer, money to the Principal and Interest Account of the Bond Fund for the purpose of paying interest on the Tax-Exempt Bonds prior to completion of construction of the Project; and

(iii) upon receipt of a properly executed form of a Requisition Certificate signed by an Authorized Representative of the Issuer and approved by an Independent Engineer, pay to the parties designated by the Issuer and in such amounts as set forth in the Requisition Certificate as payment toward the Project Costs.

All payments and transfers made from the Project Account - Tax-Exempt pursuant to a duly authorized and executed Requisition Certificate shall be presumed to be made properly and the Trustee shall not be required to see to the application of any payments and transfers made from the Project Account - Tax-Exempt.

Project Account - BABs

The Trustee shall deposit in or transfer to the Project Account - BABs:

(i) immediately upon receipt thereof, the amounts derived from Bond proceeds required to be deposited therein pursuant to the Indenture; and

(ii) all amounts required to be transferred to the Project Account - BABs from the Costs of Issuance Account pursuant to the Indenture.

The money and investments in the Project Account - BABs shall be held in trust by the Trustee and applied in accordance with and subject to the provisions of the Indenture and, pending such application, shall be held for the further security of the Owners of the Bonds until applied as provided herein. Until actually disbursed by the Trustee to or upon the order of the Issuer in accordance with the Indenture, the Issuer shall have no interest in such money and investments.

From the Project Account - BABs, the Trustee shall:

(i) transfer to the Principal and Interest Account of the Bond Fund, on or before the day prior to the Interest Payment Date, until the completion of construction of the Project, an amount equal to the interest to become due on the Series 2010B Bonds (less any subsidy credit to be received) then outstanding on the next Interest Payment Date;

H-19 (ii) transfer, if and when directed by the Issuer, money to the Principal and Interest Account of the Bond Fund for the purpose of paying interest on the Series 2010B Bonds prior to completion of construction of the Project; and

All payments and transfers made from the Project Account - BABs pursuant to a duly authorized and executed Requisition Certificate shall be presumed to be made properly and the Trustee shall not be required to see to the application of any payments and transfers made from the Project Account - BABs.

Project Account - Taxable

The Trustee shall deposit in or transfer to the Project Account - Taxable:

(i) immediately upon receipt thereof, the amounts derived from Bond proceeds required to be deposited therein pursuant to the Indenture; and

(ii) amounts as are received by the Trustee from the Issuer or from any other source (other than proceeds of the Bonds) for purposes of paying Project Costs.

The money and investments in the Project Account - Taxable shall be held in trust by the Trustee and applied in accordance with and subject to the provisions of the Indenture and, pending such application, shall be held for the further security of the Owners of the Bonds until applied as provided herein. Until actually disbursed by the Trustee to or upon the order of the Issuer in accordance with the Indenture, the Issuer shall have no interest in such money and investments.

From the Project Account - Taxable, the Trustee shall:

(i) transfer to the Principal and Interest Account of the Bond Fund, on or before the day prior to the Interest Payment Date until the completion of construction of the Project, an amount equal to the interest to become due on the Series 2010C Bonds then outstanding on the next Interest Payment Date;

(ii) transfer, if and when directed by the Issuer, money to the Principal and Interest Account of the Bond Fund for the purpose of paying interest on the Bonds prior to completion of construction of the Project; and

All payments and transfers made from the Project Account - Taxable pursuant to a duly authorized and executed Requisition Certificate shall be presumed to be made properly and the Trustee shall not be required to see to the application of any payments and transfers made from the Project Account - Taxable.

The date of completion of construction of the Project shall be the date when the Trustee shall have received a certificate in the form attached to the Indenture (the "Completion Certificate") of an Authorized Representative of the Issuer to the effect that all Financing Expenses and Project Costs to be paid from the Project Fund have been paid in full.

H-20 Application of Balance in Project Fund

Upon receipt of the Completion Certificate, the Trustee shall transfer any money and investments remaining in the accounts in the Project Fund to the Redemption Account of the Bond Fund to be used to redeem Bonds on the earliest redemption date.

Investment of Money in the Project Fund

Pending application of money in the Project Fund as set forth in the Indenture, such money shall be invested and reinvested by the Trustee in accordance with the requirements of the Indenture. All investment earnings, if any, on money in any account in the Project Fund shall be deposited in the respective account of the Project Fund.

Reserve Fund

The Trustee shall deposit in or transfer to the Reserve Fund:

(i) immediately upon receipt thereof, the amounts derived from Bond proceeds required to be deposited therein pursuant to the Indenture; and

(ii) amounts as are received by the Trustee from the Issuer or from any other source (other than proceeds of the Bonds) which have been designated for deposit in the Reserve Fund.

All income derived from the investments on deposit in the Reserve Fund shall remain in, and be credited to, the Reserve Fund unless the amount on deposit in the Reserve Fund exceeds the Required Reserve, in which case, such excess shall be deposited to the Principal and Interest Account.

On March 1 and September 1 of each year the Trustee shall determine the market value of the amounts on deposit in the Reserve Fund, including amounts available under any Reserve Account Insurance Policy. If the amount determined to be on deposit in the Reserve Fund is in excess of the Required Reserve, such excess shall be transferred and deposited to the Principal and Interest Account. If the amount determined to be on deposit in the Reserve Fund is less than the Required Reserve, the Trustee shall so notify the Issuer and, as set forth below, the Issuer shall replenish and restore the amount on deposit in the Reserve Fund to an amount equal to the Required Reserve.

Amounts on deposit in the Reserve Fund, including amounts available under any Reserve Account Insurance Policy, may be withdrawn and used by the Trustee, when necessary, and shall only be so withdrawn and used if and to the extent necessary to prevent the occurrence of an Event of Default or for the purpose of making payments of principal of and interest on the Bonds (including both principal maturities and mandatory redemptions) if the amounts on deposit in the Bond Fund are not sufficient to make such payments.

In the event that any funds shall be paid by any Reserve Account Insurance Policy or funds then on deposit shall be withdrawn from the Reserve Fund (the "Reserve Fund Withdrawal"), the Issuer shall be obligated to transfer funds from the Revenue Fund to the Reserve Fund in each month in an amount equal to 1/12 of the Reserve Fund Withdrawal until such Required Reserve has been restored. Such funds shall be used first to restore the Reserve Account Insurance Policy to the face amount of such Reserve Account Insurance Policy and thereafter to restore any cash which had been on deposit in the Reserve Fund.

If, whenever, and so long as the Reserve Fund contains more than one surety or Reserve Account Insurance Policy, any charge, draw, withdrawal, or other reduction in or from such Reserve Fund must be made pro rata against

H-21 such surety and/or Reserve Account Insurance Policies after the depletion of any cash or assets other than surety bonds or policies.

As and when Parity Bonds are issued, provision shall be made similarly for increasing the Reserve Fund, if necessary and to the extent not fully funded concurrently with the issuance of such Parity Bonds, to not less than the Required Reserve applicable to all Bonds, including the Parity Bonds, then scheduled to be Outstanding falling due in any 12-month period thereafter, by (a) the immediate deposit in cash and/or investments of such additional amount required to provide such increased Required Reserve, or (b) obtaining a Reserve Account Insurance Policy to effect such funding.

All amounts on deposit in the Reserve Fund shall constitute a trust fund and shall be and are hereby earmarked and pledged for the security and source of payment for the Bonds.

Capital Improvement Fund

In order to provide moneys which will be available for Capital Improvements to the Project, there shall be transferred and deposited into the Capital Improvement Fund, from the Revenue Fund, in as nearly equal monthly deposits as practicable, the amount recommended by an Independent Consultant and set forth in the Annual Budget of Issuer. Balances at any time on deposit in said Capital Improvement Fund may be expended upon order of the Issuer for costs of the Capital Improvements, and to the extent not so expended the same shall accumulate in the Capital Improvement Fund until such time as the amount on deposit in the Capital Improvement Fund shall equal the Capital Reserve Requirement, represented either by cash or by the market value of investments, as permitted in the Indenture, and upon the accumulation of an amount equal to the Capital Reserve Requirement, the monthly transfers from the Revenue Fund may be suspended. If and when it shall become necessary to make disbursements from the Capital Improvement Fund for such authorized Capital Improvements, the monthly transfers and deposits from the Revenue Fund shall be resumed and continued until the amount on deposit in the Capital Improvement Fund shall have been restored to the Capital Reserve Requirement.

Pending application of money in the Capital Improvement Fund as set forth in the Indenture, such money shall be invested and reinvested in Authorized Investments pursuant to the Indenture. Any investment so made shall be held for the account of the Capital Improvement Fund. Any income or gain realized therefrom shall be credited to the Capital Improvement Fund and expenses or loss in connection therewith shall be charged to said Capital Improvement Fund. It is recognized and determined by the Issuer that provision for the aforesaid Capital Improvement Fund shall take into account the annual requirements for retirement of the Outstanding Bonds and the capital costs of additions, improvements, renovations and betterments financed from surplus revenues, and should be at least equivalent to the accounting practices of privately owned utility systems for depreciation of electric generation and transmission facilities. Accordingly, it is determined that such serial retirement of Outstanding Bonds may be shown on the books of record and account of the Issuer as balancing, in part, the normal depreciation of the Project.

In the event there would otherwise be a default in the payment of interest on or the principal of the Outstanding Bonds, any balance then on deposit in the Capital Improvement Fund may be withdrawn and applied to such extent as may be necessary in order to prevent such default, and any investments held for the account of the Capital Improvement Fund may be converted into cash if and to the extent required for such purpose; but such withdrawals shall be deemed to be advances from the Capital Improvement Fund and the amount thereof shall be restored as soon as moneys are available.

Operating Fund

The Issuer shall deposit in or transfer to the Operating Fund:

(i) immediately upon receipt thereof, the amounts derived from Bond proceeds required to be deposited therein pursuant to the Indenture; and

H-22 (ii) amounts as are received by the Issuer from any other source (other than proceeds of the Bonds) which have been designated for deposit to the Operating Fund.

On the 20th day of each month, beginning with the first month in which the Issuer receives payments under a Power Sales Agreement, the Issuer shall transfer from the Revenue Fund, an amount equal to the balance of the aggregate Operating Expenses set forth in the Annual Budget approved by the Issuer for the current Fiscal Year divided by the number of complete and partial calendar months remaining in said Fiscal Year (or such larger amount as is necessary). Moneys on deposit in the Operating Fund shall be used by the Issuer to pay the Operating Expenses of the Project, including but not limited to salaries, wages, cost of materials and supplies, power purchased at wholesale, tax equivalent payments, transmission costs and fees, insurance and professional services, and all other Operating Expenses associated with any provision of the Indenture or any Power Sales Agreement.

Funds on deposit in the Operating Fund shall be drawn and disbursed by the Issuer without the requirement of any requisition or certification.

All investment earnings, if any, on money in the Operating Fund shall be retained in the Operating Fund.

Rate Stabilization Fund

In order to provide moneys which will be available to stabilize the costs to the PSA Signatories of the fluctuations in wholesale power costs or increased costs as a result of (i) shortages or outages of power and energy anticipated to be generated by the Project or (ii) the increase in wholesale power costs to the PSA Signatories for the purchase of power and energy prior to the completion and operation of the Project, there shall be transferred and deposited into the Rate Stabilization Fund, from the Revenue Fund, in as nearly equal monthly deposits as practicable, the amount recommended by an Independent Consultant and set forth in the Annual Budget of Issuer. Balances at any time on deposit in said Rate Stabilization Fund may be expended by the Issuer to stabilize the temporary increases in wholesale power costs, and to the extent not so expended the same shall accumulate in the Rate Stabilization Fund until such time as the amount on deposit in the Rate Stabilization Fund shall equal the Rate Stabilization Requirement, represented either by cash or by the market value of investments, as permitted i the Indenture, and upon the accumulation of an amount equal to the Rate Stabilization Requirement, the monthly transfers from the Revenue Fund may be suspended. If and when it shall become necessary to make disbursements from the Rate Stabilization Fund, the monthly transfers and deposits from the Revenue Fund shall be resumed and continued until the amount on deposit in the Rate Stabilization Fund shall have been restored to the Rate Stabilization Requirement.

Pending application of money in the Rate Stabilization Fund as set forth in the Indenture, such money shall be invested and reinvested in Authorized Investments pursuant to the Indenture. Any investment so made shall be held for the account of the Rate Stabilization Fund. Any income or gain realized therefrom shall be credited to the Rate Stabilization Fund and expenses or losses in connection therewith shall be charged to said Rate Stabilization Fund.

Decommissioning Fund

In order to provide moneys which will be available to pay for Decommissioning Costs, there shall be transferred and deposited into the Decommissioning Fund, from the Revenue Fund, in as nearly equal monthly deposits as practicable, the amount recommended by an Independent Consultant and set forth in the Annual Budget of Issuer. Balances at any time on deposit in said Decommissioning Fund may be expended by the Issuer to pay Decommissioning Costs, and to the extent not so expended the same shall accumulate in the Decommissioning Fund until such time as the amount on deposit in the Decommissioning Fund shall equal the Decommissioning Reserve Requirement, represented either by cash or by the market value of investments, as permitted in the Indenture, and upon the accumulation of an amount equal to the Decommissioning Reserve Requirement, the monthly transfers from the Revenue Fund may be suspended. If and when it shall become necessary to make disbursements from the Decommissioning Fund, the monthly transfers and deposits from the Revenue Fund shall be resumed and continued until the amount on deposit in the Decommissioning Fund shall have been restored to the Decommissioning Reserve Requirement.

H-23 Pending application of money in the Decommissioning Fund as set forth in the Indenture, such money shall be invested and reinvested in Authorized Investments pursuant to the Indenture. Any investment so made shall be held for the account of the Decommissioning Fund. Any income or gain realized therefrom shall be credited to the Decommissioning Fund and expenses or losses in connection therewith shall be charged to said Decommissioning Fund.

Operating Reserve Fund

At the close of each fiscal quarter there shall be transferred from the Operating Fund and deposited in the Operating Reserve Fund all amounts in excess of the estimated Operating Expenses needed for the next quarter. Amounts on deposit in the Operating Reserve Fund, from time to time as so determined by the Issuer, may be transferred, as needed, to increase the amount in or replenish any deficit in any other Fund established by the Indenture or used to (i) pay Operating Expenses or any other costs or expense associated with the Project; (ii) pay the principal of and interest on the Bonds; (iii) redeem any Bonds; and/or (iv) pay any cost or expense required by the Indenture or the Power Sales Agreement.

At the end of any Fiscal Year the amount on deposit in the Operating Reserve Fund in excess of the Operating Reserve Requirement shall be transferred and deposited into the General Fund.

Pending application of money in the Operating Reserve Fund as set forth in the Indenture, such money shall be invested and reinvested in Authorized Investments pursuant to the Indenture. Any investment so made shall be held for the account of the Operating Reserve Fund. Any income or gain realized therefrom shall be credited to the Operating Reserve Fund and expenses or losses in connection therewith shall be charged to said Operating Reserve Fund.

General Fund

The Issuer shall deposit in or transfer to the General Fund:

(i) immediately upon receipt thereof, the amounts derived from Operating Reserve Fund required to be transferred therefrom and deposited in the General Fund pursuant to the Indenture; and

(ii) amounts as they are received by the Issuer from any other source (other than proceeds of the Bonds) which have been designated for deposit to the General Fund.

Moneys on deposit in the General Fund shall be divided into pro rata amounts equal in proportion to the PSA Signatories' Entitlement Percentages as reflected in the Power Sales Agreements and thereafter deposited into separate accounts respectively named for each PSA Signatory. Upon the direction of the respective PSA Signatory, moneys on deposit in the respective PSA Signatory's General Fund account shall be used as a credit to offset any required payment to be made by the PSA Signatory under the Power Sales Agreement.

Pending application of money in the General Fund as set forth in the Indenture, such money shall be invested and reinvested in Authorized Investments pursuant to the Indenture. Any investment so made shall be held for the respective account in the General Fund. Any income or gain realized therefrom shall be credited to the respective account of the General Fund and expenses or losses in connection therewith shall be charged to said respective account of the General Fund.

Rebate Fund

(a) The Issuer hereby authorizes the Trustee to establish a separate special fund designated as the "Rebate Fund," which shall be segregated from all other funds and accounts held by the Trustee. If such a fund is established, the Trustee shall maintain the Rebate Fund until the expiration of 60 days after the retirement of the last Outstanding Bond.

H-24 (b) The Trustee shall maintain records of investment transactions of the gross proceeds of the Bonds held in the Project Fund and the Bond Fund on an investment-by-investment basis and shall make such records available at the request of the Issuer to the Rebate Analyst. The Issuer shall cause the Rebate Amount to be calculated as of each Installment Computation Date and as of the Final Computation Date. The Issuer shall employ a Rebate Analyst to calculate the Rebate Amount.

(c) The Issuer shall cause the rebate calculations to be completed and filed with the Trustee not later than 45 days after each Installment Computation Date, or 45 days after the Final Computation Date.

(d) The Trustee shall transfer from the Revenue Fund, from time to time, such amounts as directed by the Issuer for deposit to the Rebate Fund for the purpose of accruing funds to pay to the United States in the amounts required to be paid under the Indenture. Not later than three Business Days after the rebate calculations are filed with the Trustee, the Trustee shall transfer from the Revenue Fund for deposit to the Rebate Fund an amount such that the balance in the Rebate Fund is at least equal to the Rebate Amount.

(e) Not later than 55 days after each Installment Computation Date, or 55 days after the Final Computation Date, the Issuer shall cause to be paid to the United States any amount which is required to be paid under Section 148(f)(3) of the Code. Each payment shall be mailed to the Internal Revenue Service Center, Philadelphia, Pennsylvania 19255, and shall be accompanied by a copy of I.R.S. Form 8038-T prepared by the Issuer. The Trustee shall disburse money from the Rebate Fund to the United States for such payments.

(f) Money in the Rebate Fund shall be invested by the Trustee at the written direction of the Issuer in Authorized Investments which mature no later than the date that is 55 days after the earlier of the next Installment Computation Date or the Final Computation Date.

(g) No earlier than 120 days and no later than 90 days prior to each Installment Computation Date and the Final Computation Date, the Trustee shall notify the Issuer of the action which is required by the foregoing subsections. No earlier than 15 days and no later than 10 days prior to the date on which the rebate calculations must be completed under paragraph (c) above, the Trustee shall use its best efforts to notify the Issuer of the action required by paragraph (c) above. No notice need be given if the required action already has been taken by the Issuer.

(h) In addition to the records required by paragraph (a) above, the Trustee shall maintain such records of investments, deposits and disbursements in the Funds as the Issuer may specifically instruct the Trustee to maintain to comply with the provisions of Section 148 of the Code and the Indenture.

(i) If the calculation of the Rebate Amount under paragraph (b) above indicates that the balance in the Rebate Fund exceeds the Rebate Amount as of the date on which a payment is made to the United States pursuant to paragraph (e) above, then the Trustee shall, if directed by the Issuer, transfer all or any portion of such excess to the Revenue Fund.

(j) The Issuer shall be responsible for the calculation and paying of all Rebate Amounts due under Section 148 of the Code. The Trustee shall not be obligated to calculate or pay Rebate Amounts on behalf of the Issuer. The obligation of the Trustee under the Indenture is limited to giving notice to the Issuer on a best efforts basis, keeping records, investing money and depositing and disbursing money in and from the Rebate Fund in accordance with instructions from the Issuer and the Indenture.

(k) The intent of the Indenture is to require funding of the Rebate Fund so that money in that account will be available to pay Rebate Amounts when they are required to be paid under Section 148 of the Code. Notwithstanding anything to the contrary in the Indenture, the Issuer may cause the Trustee to amend the Indenture, without consent of the Bondowners, in any manner consistent with the intent of the Indenture, if the Issuer provides the Trustee with an opinion of Tax Counsel to the effect that:

H-25 (i) the Indenture, as amended, states in reasonable detail the procedures with which the Issuer must comply under the applicable provisions of the regulations and rulings under Section 148 of the Code that are then in effect, and requires the Trustee to notify the Issuer in advance of the date on which action is required to comply with Section 148(f) of the Code; and

(ii) the amendment will not cause interest on the Tax-Exempt Bonds to become includable in gross income for federal income tax purposes; and

(iii) the amendment is consistent with the stated intent of the Indenture prior to its amendment.

(l) The Trustee shall retain records of the source of and determination of the Rebate Amounts required to be deposited and credited to the Rebate Fund, of the proceeds of any investments of money in the Rebate Fund, and of the amounts paid to the United States Treasury from the Rebate Fund for six years after the retirement of the last Outstanding Bond, or such shorter period as may be permitted by Section 148 of the Code.

(m) The Trustee may, in its discretion, establish such accounts within the Rebate Fund established under the Indenture, and subaccounts within any of such accounts, as the Trustee may deem necessary or useful for the purpose of identifying more precisely the sources of payments into and disbursements from such accounts or subaccounts, but the establishment of any such additional account or subaccount shall not alter or modify any of the requirements of the Indenture with respect to the deposit or use of money in the Rebate Fund established under the Indenture or result in commingling of funds not permitted thereunder.

Final Balances

Upon payment of all principal of and premium, if any, and interest on the Bonds, and upon payment of all sums properly due and payable hereunder and under the Power Sales Agreements (including all fees, charges and expenses of the Trustee and the Issuer which are properly due and payable hereunder and under the Power Sales Agreements as of such date), all money remaining in all Funds and accounts, except money held by the Trustee pursuant to any escrows established under the Indenture, shall be remitted and paid to the Issuer.

Investment of Funds

Money on deposit in the Project Fund shall be invested and reinvested by the Trustee in Authorized Investments, as directed by the Issuer and confirmed in writing.

In the absence of written direction from the Issuer with respect to investment of moneys held in the Project Fund, the Trustee is hereby directed to invest funds in money market mutual funds of the Trustee or its affiliates that qualify as Authorized Investments under the Indenture.

Money on deposit in the Principal and Interest Account or Redemption Account of the Bond Fund shall be invested and reinvested by the Trustee in Authorized Investments as directed by the Issuer and confirmed in writing, but in the event of the failure of the Issuer to provide timely directions as to such investments or reinvestments, the Trustee shall invest or reinvest any or all money held by it in the Bond Fund in the uninvested cash account maintained by the Trustee. In all cases money in the accounts in the Bond Fund shall be invested only in Authorized Investments maturing no later than the date money in such account or accounts is needed to make the payments authorized to be made therefrom.

Money on deposit in the Reserve Fund shall be invested and reinvested by the Trustee in Authorized Investments, as directed by the Issuer and confirmed in writing.

In the absence of written direction from the Issuer with respect to investment of moneys held in the Reserve Fund, the Trustee is hereby directed to invest funds in money market mutual funds of the Trustee or its affiliates that qualify as Authorized Investments under the Indenture.

H-26 Money on deposit in the Rebate Fund, if created, shall be invested only in accordance with the provisions of the Indenture.

Allocation of Income and Losses

The interest and income received with respect to the investments in any Fund or account held by the Trustee under the Indenture, and any profit or loss resulting from the sale of any such investments, shall be deposited and credited upon receipt, or charged to such Fund or such account, and all earnings received from the investment of money in any Fund or account shall be credited as described in the Indenture.

Whenever any transfer or payment is required to be made from any particular Fund or account, such transfer or payment shall be made from such combination of maturing principal, redemption or repurchase prices, liquidation proceeds and withdrawals of principal as the Trustee deems appropriate for such purposes, after taking into account such factors as the Trustee may deem appropriate.

Neither the Issuer nor the Trustee shall be accountable for any depreciation in the value of the investments or any losses incurred upon any authorized disposition thereof.

Investments; Arbitrage; Special Arbitrage Restriction

The Trustee may make any and all investments permitted by the provisions of the Indenture through its own trust department. As and when any amount invested pursuant to the Indenture may be needed for disbursement, the Trustee shall cause a sufficient amount of such investments to be sold and reduced to cash to the credit of such Funds. The Trustee covenants that at any time that it has discretion as to such investments it will not use or invest the proceeds of the Tax-Exempt Bonds or the Series 2010B Bonds in any manner which will cause the Tax-Exempt Bonds or the Series 2010B Bonds to become "arbitrage bonds" within the meaning of Section 148 of the Code and any lawful regulation proposed or promulgated thereunder, as the same exist on this date or may from time to time hereafter be amended, supplemented or revised. The Trustee may rely upon certificates of certified public accountants and opinions of Tax Counsel or Bond Counsel with respect to the foregoing covenants.

Performance of and Authority for Covenants

The Issuer covenants and represents that it will faithfully perform at all times any and all covenants, undertakings, stipulations and provisions contained in the Indenture and in the Related Documents, in any and every Bond executed, authenticated and delivered hereunder and in all proceedings of its Board of Directors pertaining thereto; that it is duly authorized under the Constitution and laws of the State, including particularly and without limitation the Act, to issue the Bonds and to pledge and grant a security interest in the Trust Estate in the manner and to the extent set forth in the Indenture; that all action on its part for the issuance of the Bonds and for the execution and delivery thereof will be duly and effectively taken and that such Bonds in the hands of the Owners thereof will be valid and enforceable special and limited obligations of the Issuer according to the terms thereof.

The Issuer acknowledges and agrees that all covenants contained in the Indenture are with and for the benefit of all Bondowners and can be enforced by the Trustee, in its discretion or at the direction of the Bondowners, as provided herein, or by the Bondowners in accordance with the provisions of the Indenture.

Extensions of Payments of Bonds

The Issuer will not directly or indirectly extend or assent to the extension of the maturity of any of the Bonds or the time of payment of interest thereon without the consent of the Trustee and the Owners of all Outstanding Bonds.

H-27 Concerning the Power Sales Agreement

The Issuer will do or cause to be done all things on its part to be performed under the Power Sales Agreement so that the rights and obligations of the Issuer thereunder shall not be impaired or excused.

Lien of Indenture

The Issuer will not knowingly create or suffer to be created any lien having priority or preference over the lien of the Indenture upon the Trust Estate or any part thereof, other than the security interests granted by it to the Trustee thereunder. Except to the extent otherwise provided in the Indenture, the Issuer will not knowingly enter into any contract or take any action by which the rights of the Trustee or the Bondowners will be impaired.

Instruments of Further Assurance

The Issuer will do, execute, acknowledge and deliver, or cause to be done, executed, acknowledged and delivered, such indentures supplemental to the Indenture and such further acts, instruments, and transfers for the better conveying, assuring, transferring, assigning, pledging and hypothecating unto the Trustee the rights, title and interests of the Issuer in the Power Sales Agreement as security for the payment of the principal of and premium, if any, and interest on the Bonds in the manner and to the extent contemplated in the Indenture.

Tax-Exempt Status of Series 2010A Bonds

The Issuer covenants and agrees not to use or permit the use of any of the proceeds of the Tax-Exempt Bonds in such manner, and not to take or omit to take any other action in such manner, as will impair the exclusion of interest on the Tax-Exempt Bonds from gross income for federal income tax purposes. The Issuer further covenants and agrees to comply with applicable arbitrage rebate requirements under Section 148 of the Code.

Tax Covenants Relating to Series 2010B Bonds

The Recovery Act authorizes the Issuer to issue taxable bonds known as "Build America Bonds" to finance capital expenditures for which it could issue tax-exempt bonds and to elect to receive a subsidy payment from the federal government equal to 35% of the amount of each interest payment on such taxable bonds if the Issuer so designates such bonds.

The Issuer has made an irrevocable election to designate the Series 2010B Bonds as "Build America Bonds" under Section 54AA of the Code and such Series 2010B Bonds shall be "qualified bonds" pursuant to Section 54AA(g) of the Code so that the Issuer will receive a refundable credit under Section 6431 of the Code equal to 35% of the stated interest paid on the Series 2010B Bonds.

The Issuer covenants and agrees that:

(i) All of the excess of (a) the available project proceeds (as defined in Section 54A of the Code to mean sale proceeds of the Series 2010B Bonds less not more than 2% of such proceeds used to pay costs of issuance plus investment proceeds thereon), over (b) any amounts in a reasonably required reserve fund (within the meaning of Section 150(a)(3) of the Code) with respect to such issue, is to be used for capital expenditures;

(ii) The Issuer will comply with the requirements of Section 54AA(g) of the Code to assure eligibility of the Issuer for receipt of the direct pay interest credit;

(iii) The issue price (reoffering price) of the Series 2010B Bonds of the same maturity does not exceed the par amount by more than .25% multiplied by the number of complete years to the earlier of the maturity date or the first optional redemption date for such Series 2010B Bonds; and

H-28 (iv) The Issuer will not use or permit the use of any of the funds provided by the Series 2010B Bonds in such a manner as to, or take or omit to take any action which would, impair the status of the Series 2010B Bonds as "qualified bonds" under Section 54AA of the Code.

Rate Covenant

The Issuer covenants and agrees that while any of the Bonds authorized under the Indenture Outstanding and unpaid, the rates charged and collected under the Power Sales Agreement for the sale of power produced by the Project, shall be fixed, maintained and, if necessary, adjusted from time to time, to be sufficient, so as to produce, based upon the audited financial statements of the Issuer relating to the Project, in each Fiscal Year, a Debt Service Coverage Ratio equal to at least 1.10:1 (the "Rate Coverage"); and that the rates prevailing at any time will not be reduced except upon the basis of a statement of an Independent Engineer, after necessary investigation, that in his or her opinion the Rate Coverage will not thereby be reduced below such level.

Events of Default

The following events shall be Events of Default:

(1) default in the punctual payment of the principal of or premium, if any, or interest on any Bond when and as the same shall become due and payable, whether at maturity as therein expressed, by proceedings for redemption, by acceleration or otherwise; or

(2) default by the Issuer in the observance of any of the other covenants, agreements or conditions on its part contained in the Indenture or in the Bonds (other than as shall cause the mandatory redemption of Bonds under the Indenture), if such default shall have continued for a period of 90 days after written notice thereof, specifying such default and requiring the same to be remedied, shall have been given to the Issuer by the Trustee, or to the Issuer and the Trustee by the Owners of not less than a majority in aggregate principal amount of the Bonds at the time Outstanding.

The Trustee shall notify the Issuer of the occurrence of any event described in paragraph (2) above.

Acceleration of Maturity

If any Event of Default described in paragraph (1) above shall occur, the Trustee shall (subject to the provisions of the Indenture relating to Bond Insurance Policy), and in every case during the continuance of any other Event of Default may, upon notice in writing to the Issuer, declare the principal of all of the Bonds then Outstanding, and the interest accrued thereon, to be due and payable immediately, and upon any such Declaration of Acceleration the same shall become and shall be immediately due and payable, anything contained in the Indenture or in the Bonds to the contrary notwithstanding.

Upon any Declaration of Acceleration of the Bonds hereunder, the Trustee shall give notice of such declaration by mail to the respective Owners of the Bonds at their respective addresses appearing on the Bond Register.

Other Remedies Upon Default

Upon the occurrence and continuance of an Event of Default, then and in every such case the Trustee in its discretion may, and upon the written direction of the Owners of a majority in aggregate principal amount of the Bonds then Outstanding and receipt of indemnity against anticipated expenses and liability to its satisfaction (which indemnity is a condition precedent to its duties hereunder), shall, in its own name and as the Trustee of an express trust:

(1) by mandamus, or other suit, action or proceeding at law or in equity, enforce all rights of the Owners and require the Issuer or any Member to carry out any agreements with or for the benefit of the Owners of Bonds and to perform its or their duties under the Act, the Power Sales Agreement and the Indenture,

H-29 provided that any such remedy may be taken only to the extent permitted under the applicable provisions of the Power Sales Agreement or the Indenture, as the case may be;

(2) bring suit upon the Bonds;

(3) by action or suit in equity enjoin any acts or things which may be unlawful or in violation of the rights of the Owners of Bonds;

(4) enforce any provisions of any Power Sales Agreement under which there may exist at that time a PSA Default Event; or

(5) exercise any other remedies available at law or in equity.

Application of Revenues and Other Funds After Default

If an Event of Default shall occur and be continuing, all Revenues and any other funds then held or thereafter received by the Trustee under any of the provisions of the Indenture (subject to certain sections titled "Rebate Fund" and "Unclaimed Moneys" and provided that money described in "Unclaimed Moneys" shall not be used for purposes other than payment of the Bonds) shall be applied by the Trustee as follows and in the following order:

(1) To the payment of any expenses necessary in the opinion of the Trustee to protect the interests of the Owners of the Bonds and payment of reasonable charges and expenses of the Trustee (including reasonable fees and disbursements of its legal counsel) incurred in and about the performance of its powers and duties under the Indenture; and

(2) To the payment of amounts then due on the Bonds (upon presentation of the Bonds to be paid, and stamping thereon of the payment if only partially paid, or surrender thereof if fully paid) subject to the provisions of the Indenture, without preference or priority of any kind, ratably, according to the amounts due on the Bonds for principal (and premium, if any) and interest, respectively, to the Owners thereof without discrimination or privilege.

Trustee to Represent Bondowners

The Trustee is hereby irrevocably appointed (and the successive respective Owners of the Bonds, by taking and holding the same, shall be conclusively deemed to have so appointed the Trustee) as trustee and true and lawful attorney- in-fact of the Owners of the Bonds for the purpose of exercising and prosecuting on their behalf such rights and remedies as may be available to such Owners under the provisions of the Bonds, the Indenture, the Power Sales Agreements and applicable provisions of any other law. Upon the occurrence and continuance of an Event of Default or other occasion giving rise to a right in the Trustee to represent the Bondowners, the Trustee in its discretion may, and upon the written request of Owners of a majority in aggregate principal amount of the Bonds then Outstanding as provided in the Indenture, and upon being indemnified against anticipated expenses and liabilities to its satisfaction therefor (which indemnity is a condition precedent to its duties hereunder), shall, proceed to protect or enforce its rights or the rights of such Owners by such appropriate action, suit, mandamus or other proceedings as it shall deem most effectual to protect and enforce any such right, at law or in equity, either for the specific performance of any covenant or agreement contained herein, or in aid of the execution of any power herein granted, or for the enforcement of any other appropriate legal or equitable right or remedy vested in the Trustee or in such Owners under the Indenture, the Power Sales Agreements or any other law; and upon instituting such proceeding, the Trustee shall be entitled, as a matter of right, to the appointment of a receiver of the Revenues and other assets pledged under the Indenture, pending such proceedings. Notwithstanding the foregoing, the Trustee shall not require indemnification prior to accelerating the Bonds as required in the Indenture, or making payment of principal of or premium, if any, or interest on the Bonds.

All rights of action under the Indenture or the Bonds or otherwise may be prosecuted and enforced by the Trustee without the possession of any of the Bonds or the production thereof in any proceeding relating thereto, and any

H-30 such suit, action or proceeding instituted by the Trustee shall be brought in the name of the Trustee for the benefit and protection of all the Owners of such Bonds, subject to the provisions of the Indenture.

Bondowners' Direction of Proceedings

Anything in the Indenture to the contrary notwithstanding, but subject to the rights of the Bond Insurer thereunder, the Owners of a majority in aggregate principal amount of the Bonds Outstanding, shall have the right, by an instrument or concurrent instruments in writing executed and delivered to the Trustee, to direct the time, place and method of conducting all remedial proceedings taken by the Trustee thereunder, provided that such direction shall not be otherwise than in accordance with law and the provisions of the Indenture, and that the Trustee shall have the right to decline to follow any such direction that in the sole discretion of the Trustee would be unjustly prejudicial to Bondowners not parties to such direction. Before the Owners may take or require the Trustee to take any action not otherwise required thereunder, the Trustee may require that it be furnished an indemnity bond satisfactory to it for the reimbursement of all expenses to which it may be put and to protect it against all liability, except liability which is adjudicated to have resulted from the negligence or willful misconduct of the Trustee, by reason of any action so taken by the Owners or the Trustee. The Trustee shall not be responsible for the propriety of or liable for the consequences of following such a direction given by the Owners of a majority in aggregate principal amount of the Bonds Outstanding.

Limitation on Bondowners' Right to Sue

Except as otherwise provided in the Indenture, no Owner of any Bond shall have the right to institute any suit, action or proceeding at law or in equity, for the protection or enforcement of any right or remedy under the Indenture, any Power Sales Agreement or any other applicable law with respect to such Bond, unless (1) such Owner shall have given to the Trustee written notice of the occurrence of an Event of Default; (2) the Owners of not less than 50% in aggregate principal amount of the Bonds then Outstanding shall have made written request upon the Trustee to exercise the powers hereinbefore granted or to institute such suit, action or proceeding in its own name; (3) such Owner or Owners shall have tendered to the Trustee reasonable indemnity against the costs, expenses and liabilities to be incurred in compliance with such request; and (4) the Trustee shall have refused or failed to comply with such request for a period of 90 days after such written request shall have been received by, and such tender of indemnity shall have been made to, the Trustee.

Such notification, request, tender of indemnity and refusal or failure are hereby declared, in every case, to be conditions precedent to the exercise by any Owner of Bonds of any remedy hereunder or under law; it being understood and intended that no one or more Bondowners shall have any right in any manner whatever by his or their action to affect, disturb or prejudice the security of the Indenture or the rights of any other Bondowners, or to enforce any right under the Indenture, the Power Sales Agreements or applicable law with respect to the Bonds, except in the manner therein provided, and that all proceedings at law or in equity to enforce any such right shall be instituted, had and maintained in the manner provided therein and for the benefit and protection of all Owners of the Outstanding Bonds, subject to the provisions of the Indenture.

Notwithstanding the foregoing, nothing in the Indenture shall be construed as limiting or otherwise modifying the rights of the Owners and the Trustee under the Indenture, and in no event shall anything herein impair the absolute and unconditional right of the Owner of each Bond to receive payment of the principal thereof and interest and premium, if any, thereon at the times provided in such Bond and in the Indenture and to institute suit solely for the purpose of enforcing any such payment or purchase.

Absolute Obligation of Issuer

Nothing in the Indenture, or in the Bonds, shall affect or impair the obligation of the Issuer, which is absolute and unconditional, to pay the principal of and premium, if any, and interest on the Bonds to the respective Owners of the Bonds at the times stated therein, but only out of the Revenues and other assets pledged herein therefor, or affect or impair the right of such Owners, which is also absolute and unconditional, to enforce such payment by virtue of the contract embodied in the Bonds.

H-31 Termination of Proceedings

In case any proceedings taken by the Trustee or any one or more Bondowners on account of any Event of Default shall have been discontinued or abandoned for any reason or shall have been determined adversely to the Trustee or the Bondowners, then in every such case the Issuer, the Trustee and the Bondowners, subject to any determination in such proceedings, shall be restored to their former positions and rights thereunder, severally and respectively, and all rights, remedies, powers and duties of the Issuer, the Trustee and the Bondowners shall continue as though no such proceedings had been taken.

Remedies Not Exclusive

Except as otherwise provided in the Indenture, no remedy herein conferred upon or reserved to the Trustee or to the Owners of the Bonds is intended to be exclusive of any other remedy or remedies, and each and every such remedy, to the extent permitted by law, shall be cumulative and in addition to any other remedy given hereunder or now or hereafter existing at law or in equity or otherwise.

No Implied Waiver of Default

No delay or omission of the Trustee or any Owner of the Bonds to exercise any right or power arising upon the occurrence of any default shall impair any such right or power or shall be construed to be a waiver of any such default or an acquiescence therein, and every power and remedy given by the Indenture to the Trustee or to the Owners of the Bonds may be exercised from time to time and as often as may be deemed expedient.

Waivers of Events of Default

Unless a Declaration of Acceleration has been given by the Trustee, the Trustee in its discretion may, if all arrears of principal and interest, if any, on the Bonds and all expenses of the Trustee and/or the Issuer have been paid and all other defaults shall have been cured or provision satisfactory to the Trustee and the Issuer has been made therefor, waive any Event of Default hereunder other than a default under paragraph (1) of "Events of Default", and rescind its consequences. In the case of any such waiver and rescission, the Issuer, the Trustee and the Bondowners shall be restored to their former positions and rights under the Indenture, respectively, but no such waiver and rescission shall extend to any subsequent or other default, or impair any right consequent thereon.

Acceptance of Trust and Prudent Performance Thereof

The Trustee, as evidenced by its due execution of the Indenture, accepts the conveyance set forth in the preamble, in trust, and agrees to keep, perform and observe faithfully all of the covenants, conditions and requirements imposed upon it in the Indenture and in the Bonds and the covenants, conditions, requirements, duties and obligations imposed upon the Issuer in the Power Sales Agreements and assigned to the Trustee.

The Trustee shall be required to take notice or be deemed to have notice of any Event of Default hereunder except for Events of Defaults arising from PSA Default Events. The Trustee shall be required to take notice or be deemed to have notice of any other PSA Default Event only if the Trustee shall have received specific notice thereof. All notices or other instruments required by the Indenture or the Power Sales Agreement to be delivered to the Trustee, in order to be effective, must be delivered at the address specified herein in the Indenture; and in the absence of such notice so delivered and except as to Events of Default for which the Trustee shall be deemed to have received notice as provided in the Indenture, the Trustee may conclusively assume that there is no default or Event of Default. Nonetheless, the Trustee may in its sole discretion take notice of a PSA Default Event without having received specific notice thereof. In such case, the Trustee shall proceed as if it had received such specific notice and all provisions of the Indenture applying to the Trustee after having received such specific notice shall apply to the Trustee in actions without such specific notice.

H-32 The Trustee shall not be liable with respect to any action taken or omitted to be taken hereunder except for its own negligent failure to act or its own negligence or willful misconduct; provided, that:

(a) In the absence of an Event of Default, the duties and obligations of the Trustee shall be determined solely by the express provisions of the Indenture; the Trustee shall be obligated to take only such actions as are specifically set forth herein or as are specifically required to be taken by the Trustee when requested from time to time by the Owners of not less than the aggregate principal amount of Outstanding Bonds specified herein with respect to the action in question; and

(b) In the absence of willful misconduct on the part of the Trustee, the Trustee may conclusively rely, as to the truth of the statements and to the correctness of the opinions expressed therein, upon any certificate or opinion furnished to the Trustee conforming to the procedural requirements of the Indenture or the Power Sales Agreements; but in the case of any such certificate or opinion which by any provision is specifically required to be furnished to the Trustee, the Trustee shall be under a duty to examine the same to determine whether or not it conforms to the procedural requirements of the Indenture or the Power Sales Agreement; and

(c) The Trustee shall not be liable for any error of judgment made in good faith by the Trustee unless it shall be proved that the Trustee was negligent in ascertaining the pertinent facts; and

(d) The Trustee shall not be liable with respect to any action taken or omitted to be taken by it in good faith in accordance with the direction of the Owners of not less than a majority in aggregate principal amount of Outstanding Bonds or in accordance with the express provisions of the Indenture.

Appointment of Trustee

There shall at all times be a trustee under the Indenture which shall be an association or a corporation organized and doing business under the laws of the United States or any state thereof, authorized under such laws to exercise corporate trust powers, having a combined capital and surplus of at least $100,000,000 (or a subsidiary of an association or corporation having such combined capital and surplus), and subject to supervision or examination by federal or state authority. The written consent of the Rating Agency, if any, shall be required for the appointment of any successor to the Trustee unless the obligations of such successor are rated Baa3/P-3 or higher by the Rating Agency. If such association or corporation publishes reports of condition at least annually, pursuant to law or to the requirements of any supervising or examining authority referred to above, then for the purposes of this paragraph, the combined capital and surplus of such association or corporation shall be deemed to be its combined capital and surplus as set forth in its most recent report of condition so published. If at any time the Trustee shall cease to be eligible in accordance with the provisions of this paragraph and another association or corporation is eligible, the Trustee shall resign immediately in the manner and with the effect specified in the Indenture.

Resignation of Trustee

The Trustee may resign and be discharged from the trusts created by the Indenture by giving to the Issuer 45 days' advance written notice. Such resignation shall take effect on the day specified in such notice, but the Trustee shall not be discharged from the trusts created hereby until a successor trustee has been approved and appointed. Subsequent to such date, the Trustee shall have no further duties and obligations under the Indenture or any Power Sales Agreement.

Removal of Trustee

(a) Subject to the provisions of the Indenture, the Trustee may be removed at any time, either with or without cause, by the Owners of a majority in aggregate principal amount of Outstanding Bonds, provided that all fees of the Trustee due and owing pursuant to the Indenture shall first be paid.

H-33 (b) Subject to the provisions of the Indenture, the Trustee may be removed, either with or without cause, by the Issuer so long as there has been no Event of Default which then remains uncured and provided that all fees of the Trustee due and owing pursuant to the Indenture shall first be paid.

(c) Any removal of the Trustee pursuant to the Indenture shall be effected by delivery to the Trustee of a written instrument to that effect.

(d) No resignation or removal of the Trustee shall be effective until a successor to the Trustee shall have been appointed and shall have assumed those functions.

Appointment of Successor Trustee

(a) If at any time the Trustee shall resign, be removed or otherwise become incapable of acting, or shall be adjudged a bankrupt or insolvent, or if a receiver of the Trustee or of its property shall be appointed, or if a public supervisory office shall take charge or control of the Trustee or of its property or affairs, a vacancy shall forthwith and ipso facto be created in the office of such Trustee under the Indenture, and the Issuer shall promptly appoint a successor Trustee meeting the requirements of the Indenture.

(b) If, in a proper case, no appointment of a successor Trustee shall be made pursuant to the Indenture within 45 days after notice of removal or resignation of the Trustee, any Owner or the retiring Trustee may apply to any court of competent jurisdiction to appoint a successor Trustee. The court may thereupon, after such notice, if any, as such court may deem proper and prescribe, appoint a successor Trustee.

(c) The Issuer shall notify the Rating Agency of the appointment of a successor Trustee within 30 days of such appointment.

Merger of Trustee

Any corporation or association into which the Trustee may be converted or merged, or with which it may be consolidated, or to which it may sell or transfer its trust business and assets as a whole or substantially as a whole, or any corporation or association resulting from any such conversion, sale, merger, consolidation or transfer to which it is a party, ipso facto, shall be and become successor trustee hereunder and vested with all of the title to the Trust Estate and all the trusts, powers, discretions, immunities, privileges and all other matters as was its predecessor, without the execution or filing of any instrument or any further act, deed or conveyance on the part of any of the parties thereto, anything herein to the contrary notwithstanding, provided that such resulting entity shall be entitled under state or federal law to exercise corporate trust powers.

Transfer of Rights and Property to Successor Trustee

Every successor Trustee appointed hereunder shall execute, acknowledge and deliver to its predecessor and also to the Issuer a written instrument accepting such appointment hereunder, and thereupon such successor, without any further act, deed or conveyance, shall become fully vested with the Trust Estate and the rights, powers, trusts, duties and obligations of its predecessor; but such predecessor shall, nevertheless, on the written request from the Authorized Representative of the Issuer or of its successor execute and deliver a written instrument transferring to such successor all the Trust Estate and the rights, powers, trusts, duties and obligations of such predecessor hereunder, and every predecessor Trustee shall deliver all funds held by it as Trustee hereunder to its successor. Should any assignment, conveyance or written instrument from the Issuer be required by any successor Trustee for more fully and certainly vesting in such successor Trustee the Trust Estate and rights, powers, trusts, duties and obligations hereby vested or intended to be vested in the predecessor Trustee, any and all such assignments, conveyances and written instruments shall, on request, be executed, acknowledged and delivered by the Issuer. Each successor Trustee shall give notice of its appointment to all Owners appearing on the Bond Register as of the date of appointment. The successor Trustee shall reimburse the predecessor Trustee for any expenses incurred under the Indenture.

H-34 The Trustee's rights to immunity and protection from liability hereunder and its right to receive payment of its fees and expenses shall survive its removal or resignation and the final payment, defeasance or discharge of the Bonds and the termination of the lien of the Indenture.

Defeasance

If the Issuer shall issue refunding bonds or have money available from any other lawful source to pay, if applicable, the principal of and premium, if any, and interest on the Bonds, or such portion thereof included in the refunding or defeasance plan, as the same become due and to pay the costs of refunding or defeasance, and shall have set aside irrevocably in a special fund for and pledged to such payment, refunding or defeasance, money and/or Government Obligations that are not subject to redemption prior to maturity sufficient in amount, together with known earned income from the investments thereof but without regard to any reinvestment thereof, to make such payments and to accomplish the refunding or defeasance as scheduled (hereinafter called the "trust account"), and shall make irrevocable provisions for redemption of such Bonds, if such redemption is included in the refunding or defeasance plan, then in that case all right and interest of the Owners of the Bonds to be so retired, refunded or defeased (hereinafter collectively called the "Defeased Bonds") in the covenants of the Indenture, in the Revenues and Funds, and in the funds and accounts obligated to the payment of such defeased Bonds, other than the right to receive the funds so set aside and pledged, thereupon shall cease and become void. Notwithstanding the foregoing, the Owners of the Defeased Bonds shall have the residual right to receive payment of the principal of and premium, if any, and interest on the defeased Bonds from the Revenues and Funds without any priority of lien or charge against those Revenues or Funds or covenants with respect thereto except to be paid therefrom (except such rights as exist with respect to payment, exchange and transfer of such Bonds under the pertinent provisions of the Indenture, and except that the covenants contained in Section 6.6 shall continue in full force and effect). After the establishing and full funding of such trust account, the Defeased Bonds shall be deemed to be discharged and the Issuer then may apply any money in any other fund or account established for the payment or redemption of the Defeased Bonds to any lawful purposes as it shall determine, subject only to the rights of the Owners of any other Bonds then Outstanding.

Anything in the Indenture to the contrary notwithstanding, if such Eligible Funds in the form of cash or Government Obligations have been deposited or set aside with the Trustee pursuant to this Article for the payment of Bonds and interest and premium thereon, if any, and such Bonds shall not yet have been paid in full, no amendment to the provisions of the Indenture shall be made without the consent of the Owner of each Bond affected thereby.

It shall be a condition of any such defeasance of Bonds that the Issuer has obtained (i) the Opinion of Counsel recognized in the area of bankruptcy matters that payment of the Defeased Bonds from the money and securities in the trust account will not constitute a voidable preference under the Bankruptcy Code and (ii) a certificate of a nationally recognized accounting firm or Tax Counsel that the money and securities in the trust account are sufficient to discharge and defease the Defeased Bonds.

Upon the discharge and defeasance of the Defeased Bonds, the Trustee shall send written notice to each Owner of a Defeased Bond stating that the Owner's Bond has been defeased and the time and manner of presenting the Defeased Bond for payment.

Unclaimed Money

Notwithstanding any other provision of the Indenture, any money held by the Trustee for the payment and discharge of any Bond shall be held in cash and shall not be invested by the Trustee. Any money held by the Trustee for the payment and discharge of any Bond which remains unclaimed for more than one year after the discharge of such Bond (or such longer period as the Issuer may approve in writing) shall be free from such trust and shall promptly thereafter be transferred by the Trustee to the Issuer, and the Trustee shall be released and discharged with respect thereto, and the Owners of Bonds payable from any such money shall look only to the Issuer for the payment thereof (or to the State if the Issuer has delivered such money to the State in accordance with the laws of the State relating to the escheat of unclaimed funds).

H-35 The Trustee shall not be responsible for accounting for, or paying to, the Issuer or any Bondowner any return on or benefit from money held for the payment of unredeemed Bonds or outstanding checks, and no calculation of the same shall affect or result in any offset against fees due to the Trustee under the Indenture.

Amendment of Indenture

(a) The Indenture shall not be supplemented or amended in any respect subsequent to the initial issuance of the Bonds, except as provided in and in accordance with and subject to the provisions of the Indenture.

(b) The Issuer may from time to time and at any time, without the consent of or notice to the Owners of the Bonds, enter into Supplemental Indentures for the following purposes:

(1) to cure any formal defect, omission, inconsistency or ambiguity in the Indenture in a manner not adverse to the Owner of any Bonds;

(2) to impose upon the Trustee for the benefit of the Owners of the Bonds any additional rights, remedies, powers, authority, security, liabilities or duties which may lawfully be granted, conferred or imposed and which are not contrary to or inconsistent with the Indenture as theretofore in effect;

(3) to add to the covenants and agreements of, and limitations and restrictions upon, the Issuer in the Indenture other covenants, agreements, limitations and restrictions to be observed by the Issuer which are not contrary to or inconsistent with the Indenture as theretofore in effect;

(4) to confirm, as further assurance, any pledge under, and the subjection to any claim, lien or pledge created or to be created by, the Indenture of any other money, securities or funds;

(5) to comply with any federal law or interpretation, including those relating to arbitrage rebate, to prevent the occurrence of an event that in the opinion of Bond Counsel would lead to a Determination of Taxability;

(6) to modify, amend or supplement the Indenture in such manner as to permit the qualification hereof under the Trust Indenture Act of 1939, as amended, or any similar federal statute hereafter in effect, and to add such other terms, conditions and provisions as may be permitted by that act or statute, in a manner not adverse to the Owner of any Bond;

(7) to authorize different denominations of the Bonds and to make correlative amendments and modifications to the Indenture regarding exchangeability of Bonds of different Authorized Denominations, redemptions of portions of Bonds of particular Authorized Denominations and similar amendments and modifications of a technical nature;

(8) to make such changes as are elsewhere expressly permitted by the Indenture; and

(9) to modify, alter, amend or supplement the Indenture in any other respect, including modifications required by the Rating Agency, which in the reasonable judgment of the Trustee is not materially adverse to the Owners of the Bonds and which does not involve a change described in paragraph (c) below.

Concurrently with or prior to the adoption by the Issuer of any such Supplemental Indenture pursuant to the Indenture, there shall have been delivered to the Issuer and the Trustee an opinion of Bond Counsel stating that such Supplemental Indenture is authorized or permitted by the Indenture and will, upon the execution and delivery thereof, be valid and binding upon the Issuer in accordance with its terms and will not cause the interest on the Tax-Exempt Bonds to be included in gross income of the Owners for federal income tax purposes.

H-36 (c) Except for any Supplemental Indenture entered into pursuant to paragraph (b) above, subject to the terms and provisions contained in this pargraph (c) and in any Related Documents and not otherwise, the Owners of 60% in aggregate principal amount of Bonds then Outstanding shall have the right from time to time to consent to and approve the entering into by the Issuer of any Supplemental Indenture deemed necessary or desirable by the Issuer for the purpose of modifying, altering, amending, supplementing or rescinding, in any particular, any of the terms or provisions contained in the Indenture; except that, unless approved in writing by the Owners of all Bonds then Outstanding, nothing contained in the Indenture shall permit, or be construed as permitting:

(1) a change in the times, amounts or currency of payment of the principal of or premium, if any, or interest on any outstanding Bond, or a reduction in the principal amount or redemption price of any outstanding Bond or a change in the method of redemption or redemption price of any outstanding Bond or an extension of the final maturity thereof;

(2) a preference or priority of any Bond over any other Bond;

(3) a reduction in the aggregate principal amount of Bonds the consent of the Owners of which is required for any such Supplemental Indenture;

(4) the creation of any lien ranking prior to or on a parity with the lien of any Bonds; or

(5) the modification of any of the provisions of the amendment section of the Indenture.

If at any time the Issuer shall desire to enter into any Supplemental Indenture for any of the purposes of this paragraph (c), the Trustee shall cause notice of the proposed Supplemental Indenture to be given by first-class United States Mail, postage prepaid, to all Owners of the then Outstanding Bonds and to the Rating Agency. Such notice shall briefly set forth the nature of the proposed Supplemental Indenture and shall state that a copy thereof is on file at the office of the Trustee for inspection by all Owners of the Outstanding Bonds.

Within 60 days after the date of the mailing of such notice or such longer period as shall be prescribed from time to time by the Issuer, the Issuer may enter into such Supplemental Indenture in substantially the form described in such notice, but only if there shall have first or concurrently been delivered to the Trustee (i) the required consents, in writing, of the Owners of the Bonds and any other Person whose consent is required under the terms of any Related Documents, and (ii) an opinion of Bond Counsel, stating that such Supplemental Indenture is authorized or permitted by the Indenture and, upon the execution and delivery thereof, will be valid and binding upon the Issuer in accordance with its terms and will not cause interest on the Tax-Exempt Bonds to be includable in gross income of the Owners for federal income tax purposes.

If the Owners of not less than 60% in aggregate principal amount of Bonds shall have consented to and approved the execution and delivery of a Supplemental Indenture as provided herein, no Owner of any Bond shall have any right to object to the adoption of such Supplemental Indenture, or to object to any of the terms and provisions contained therein or the operation thereof, or in any manner to question the propriety of the execution thereof, or to enjoin or restrain the Issuer or the Trustee from entering into the same or from taking any action pursuant to the provisions thereof. Any written consent to a permitted amendment may be embodied in and evidenced by one or any number of written instruments of substantially similar tenor signed by such Bondowners in person or by an agent duly appointed in writing, and such consent shall become effective when such instrument or instruments are delivered to the Issuer or the Trustee.

(d) Proof of the execution of any such consent or of a writing appointing any such agent shall be sufficient for any purpose and shall be conclusive in favor of the Issuer if made in the following manner: the fact and date of the execution by any Person of any such consent or appointment may be proved by the affidavit of any witness of such execution or by the certificate of any notary public or other officer authorized by law to take acknowledgments of deeds, certifying that the Person signing such consent or appointment acknowledged to him the execution thereof. The fact and date of execution of such consent or appointment may also be proved in any other manner which the Issuer may deem

H-37 sufficient; but the Issuer may nevertheless, in its discretion, require further proof in cases where it deems further proof desirable. Any consent by the Owner of any Bond shall bind any future Owner of the same Bond with respect to any Supplemental Indenture executed by the Issuer pursuant to such consent.

(e) Upon the execution and delivery of any Supplemental Indenture pursuant to the provisions of this Section 10.1, the Indenture shall be, and be deemed to be, modified and amended in accordance therewith, and the respective rights, duties and obligations under the Indenture of the Issuer, the Trustee and all Owners of Bonds then Outstanding shall thereafter be determined, exercised and enforced under the Indenture subject in all respects to such modifications and amendments.

Amendment of Power Sales Agreement

(a) Without the consent of or notice to the Owners or the Trustee, the Issuer may modify, alter, amend or supplement the Power Sales Agreements (i) for the purpose of curing any formal defect, omission, inconsistency or ambiguity therein, (ii) for the purpose of avoiding a withdrawal or a reduction in the rating, if any, on the Bonds, (iii) based on an opinion of Bond Counsel, to preserve the tax-exempt status of interest on the Tax-Exempt Bonds, or (iv) in connection with any other change therein which is not materially adverse to the Owners of the Bonds.

(b) Concurrently with or prior to entering into or consenting to, as the case may be, any modification, alteration, amendment or supplement to any Power Sales Agreement pursuant to this the Indenture, the Issuer and the Trustee shall have received an opinion of Bond Counsel stating that such modification, alteration, amendment or supplement is authorized or permitted by the Indenture, the Power Sales Agreement and the Act, complies with their respective terms, will, upon the execution and delivery thereof, be valid and binding upon the Issuer and the Member in accordance with its terms, and will not adversely affect the exclusion from gross income of the Owners of interest on the Tax-Exempt Bonds for federal income tax purposes.

Payments Due on Other Than Business Days

In any case in which the date of payment of principal of the Bonds, whether at the stated maturity thereof, on a date fixed for redemption or otherwise, or payment of interest or premium, if any, thereon is not a Business Day then such payment need not be made on such date but may be made on the next succeeding Business Day with the same force and effect as if made on the date of maturity or redemption or the date such interest was due, as the case may be, and no interest shall accrue in respect of the period after such date.

Liability of Issuer Limited to Revenues

Notwithstanding anything contained in the Indenture or in the Bonds, the Issuer shall not be required to advance any money derived from any source other than the Trust Estate, the Revenues and other assets pledged under the Indenture for any of the purposes mentioned in the Indenture, whether for the payment of the principal of or premium, if any, or interest on the Bonds or for any other purpose of the Indenture.

Immunities and Limitations of Issuer

The Issuer shall be entitled to the advice of counsel (who, except as otherwise provided, may be counsel for any Bondowner), and the Issuer shall be wholly protected as to action taken or omitted in good faith in reliance on such advice. The Issuer may rely conclusively on any communication or other document furnished to it hereunder and reasonably believed by it to be genuine. The Issuer shall not be liable for any action (i) taken by it in good faith and reasonably believed by it to be within its discretion or powers under the Indenture, or (ii) in good faith omitted to be taken by it because such action was reasonably believed to be beyond its discretion or powers under the Indenture, or (iii) taken by it pursuant to any direction or instruction by which it is governed under the Indenture, or (iv) omitted to be taken by it by reason of the lack of any direction or instruction required hereby for such action; nor shall it be responsible for the consequences of any error of judgment reasonably made by it. The Issuer shall in no event be liable for the application or misapplication of funds or for other acts or defaults by any Person other than Issuer. When any

H-38 payment or consent or other action by it is called for hereby, it may defer such action pending receipt of such evidence (if any) as it may require in support thereof. The Issuer shall not be required to take any remedial action unless indemnity in a form acceptable to the Issuer is furnished for any expense or liability to be incurred in connection with such remedial action, other than liability for failure to meet the standards set forth in the Indenture.

FORM OF POWER SALES AGREEMENT

Term and Termination

The Power Sales Agreement shall be effective upon execution and delivery of Power Sales Agreements by KMPA and the Participating Members listed on and having the Participating Members' Entitlement Percentages specified on an attachment thereto.

The Power Sales Agreement shall terminate, unless otherwise extended by the parties, when (a) the Project has been terminated as provided in the Power Sales Agreement, (b) the principal of and premium, if any, and interest on all of the Bonds have been paid or funds set aside for the payment or retirement thereof in accordance with the Indenture, and (c) all other obligations and liabilities hereunder have been paid or provided for.

Project; Project Attributes

KMPA shall sell and the Participating Member shall purchase its Participating Member Entitlement Percentage of Energy, Capacity and other Attributes generated by the Project pursuant to the terms of the Power Sales Agreement. The amounts to be paid for each Contract Year by the Participating Member to KMPA for its Participating Member Entitlement Percentage of Attributes generated by the Project shall be in accordance with the Power Sales Agreement.

Participating Member Entitlement Percentage

The Participating Member's Entitlement Percentage shall be set forth in an attachment to the Power Sales Agreement and was initially developed based on the KMPA Ownership Interest Percentage set forth in such attachment.

Sale of Excess Participating Member's Entitlement Percentage

In the event that the Participating Member shall determine that all or any part of the Participating Member's Entitlement Percentage of the Attributes of the Project is in excess of the requirements of the Participating Member, the Participating Member shall notify KMPA of such determination and KMPA shall use its best efforts to sell and transfer for any period of time all or part of such excess. The other Participating Members shall have the first right of refusal to accept each such disposal pro rata based on Entitlement Percentage among those exercising such right before a transfer is made to another KMPA Member, an electric utility or another entity, which is not a Participating Member, as permitted by law. Preference for the sale and transfer to non Participating Members shall be given to KMPA Members that are not Participating Members assuming the sale and transfer can be made under reasonable terms,conditions and price as compared to sales to other third parties. If all or any portion of such excess of the Participating Member's Entitlement Percentage of the Attributes of the Project is sold pursuant to the Power Sales Agreement, the Participating Member's Entitlement Percentage shall not be reduced, and the Participating Member shall remain liable to KMPA to pay the full amount of Monthly Project Costs for its Participating Member Entitlement Percentage as if such sale had not been made, except that such liability shall be discharged to the extent that KMPA shall receive payment for such excess Project Attributes from the purchaser or purchasers thereof. The provisions for the sale of excess Attributes of the Project provided for in the Power Sales Agreement shall be consistent with KMPA's rights to make such sales pursuant to the KMPA Prairie State Project Agreements.

In the event that the Participating Member shall determine that all or any part of the Participating Member's Entitlement Capacity Share is in excess of the requirements of the Participating Member for the next schedule hour (i.e. "Participating Member's Excess Capacity"), the Participating Member shall notify KMPA of such determination

H-39 pursuant to the scheduling protocols to be developed pursuant to the Power Sales Agreement and KMPA shall use its best efforts to sell such Participating Member's Excess Capacity in accordance with the policies to be developed pursuant to the Power Sales Agreement. If all or any portion of such Participating Member's Excess Capacity is sold pursuant to this section, the Participating Member's Entitlement Percentage shall not be reduced, and the Participating Member shall remain liable to KMPA to pay the full amount of Monthly Project Costs for its Participating Member Entitlement Percentage as if such sale had not been made, except that such liability shall be discharged to the extent that KMPA shall receive payment for such excess Project Attributes from the purchaser or purchasers thereof. The provisions for the sale of Participating Members' Excess Capacity provided for in the Power Sales Agreement shall be consistent with KMPA's rights to make such sales pursuant to the KMPA Prairie State Project Agreements.

Participating Member Rate and System Maintenance Covenant

The Participating Member shall establish, maintain and collect rates and charges for the electric and other services of its electric system so as to provide revenues sufficient, together with available electric system reserves, to enable the Participating Member to pay to KMPA all amounts payable under the Power Sales Agreement, all other amounts payable from and all lawful charges against or liens on the revenue of its electric system and to operate and maintain its electric system in a sound, businesslike manner in accordance with Prudent Utility Practice.

Unconditional Payment Obligation

The Participating Member shall pay the Monthly Project Costs for its Participating Member Entitlement Percentage, whether or not the Project is completed or is operating or operable, and whether or not its output is suspended, interrupted, interfered with, reduced, or curtailed or terminated in whole or in part, and such payments shall not be subject to reduction, whether by offset or otherwise, and shall not be conditioned upon the performance or nonperformance by any party of any agreement for any cause whatsoever.

Termination of Project

KMPA shall have the responsibility for making a determination of when the Project will be terminated, and such decision will be made in accordance with Prudent Utility Practice, provided that (a) termination of the Project will be in accordance with provisions of the KMPA Prairie State Project Agreements, (b) termination of the Project and the Power Sales Agreement will not occur so long as any Bonds are outstanding or until adequate provision for the payment thereof has been made in accordance with provisions of the Indenture, and (c) termination of the Project and the Power Sales Agreement will not occur until adequate provisions have been made for all costs, obligations and liabilities of KMPA to decommission, salvage, discontinue, and dispose of the Facilities that comprise the Project.

Responsibility for Termination Costs

To the extent that there are outstanding and/or remaining liabilities and costs that KMPA is obligated to pay in connection with any Windup Events as defined in the KMPA Prairie State Project Agreements or termination of the Project, the Participating Member shall be responsible for payment for its Entitlement Percentage of the amount of such outstanding and/or remaining liabilities and costs. To the extent that there is a credit that KMPA is entitled to receive upon termination of the Project, the Participating Member shall receive a credit based on its Entitlement Percentage applied to such credit.

Participating Member Failure to Pay

The failure of the Participating Member to make any payment in full required hereby or to perform any obligation herein, and if such failure continues for twenty (20) days after KMPA gives notice to the Participating Member that such payment is due and unpaid or that the performance of any obligations herein is required, shall constitute an "event of default" under the Power Sales Agreement.

H-40 A copy of a notice of an event of default delivered by KMPA to a defaulting Participating Member shall be sent to the other Participating Members by KMPA.

Upon an event of default under the Power Sales Agreement by a Participating Member, KMPA shall use its best efforts to sell and transfer all or a portion of such Participating Member's Entitlement Percentage for all or a portion of the remainder of the term of the Power Sales Agreement, provided the other Participating Members shall have the first right to purchase all or a portion of such share to be disposed before a transfer is made to any entity which is not a Participating Member. In the event that the other Participating Members desire to purchase an aggregate amount in excess of the share to be disposed such purchase by the other Participating Member shall be allocable on a pro rata basis of the other Participating Members Entitlement Percentage.

Notwithstanding that all or any portion of the Participating Member's Entitlement Percentage is transferred pursuant to the Power Sales Agreement, the Participating Member shall remain liable to KMPA to pay the full amount of Monthly Project Costs for its Participating Member Entitlement Percentage as if such sale had not been made, except that such liability shall be discharged to the extent that KMPA receives payment from the purchaser or purchasers thereof.

If the Participating Member in good faith disputes the validity of KMPA's notice of an event of default, then the Participating Member shall make such payment or perform such obligation under protest directed to KMPA and shall proceed to resolve the dispute pursuant to the provisions of the Power Sales Agreement. Such protest shall specify the reasons upon which the protest is based. KMPA shall provide a copy of the protest to all other Participating Members.

Participating Member Payment Default

Upon an event of default relating to payment and after any transfers made pursuant to the Power Sales Agreement, the Entitlement Percentage of the non-defaulting Participating Members shall be automatically increased for the remaining term of the Power Sales Agreement on a pro rata basis, provided, that the increase of a non-defaulting Participating Member's Entitlement Percentage pursuant to the Power Sales Agreement shall not exceed, without consent of the non-defaulting Participating Member, an amount equivalent to 20% of the non-defaulting Participating Member's initial Entitlement Percentage upon its execution of the Power Sales Agreement.

Notwithstanding that all or any portion of the defaulting Participating Member's Entitlement Percentage is automatically transferred pursuant to the Power Sales Agreement, the defaulting Participating Member shall remain liable to KMPA to pay the full amount of Monthly Project Costs for its Participating Member Entitlement Percentage as if such transfer had not been made, except that such liability shall be discharged to the extent that KMPA receives payment from the purchaser or purchasers thereof. Non-defaulting Participating Members assuming increased Participating Member Entitlement Percentage, either individually or as a Participating Member of a group, shall have a right of recovery from the defaulting Participating Member, provided that such right of recovery shall be diminished to the extent such Participating Members have received value from the concomitant rights and interests.

KMPA or any Participating Member as their interests may appear, jointly or severally, may commence such suits, actions or proceedings, at law or in equity, including suits for specific performance, as may be necessary or appropriate to enforce the obligations of the Power Sales Agreement against the defaulting Participating Member.

KMPA or any Participating Member shall be entitled to recover from the defaulting Participating Member any and all reasonable legal fees and other costs incurred by KMPA or the non-defaulting Participating Member as a result of the Participating Member's default.

Other Participating Member Default

In the event of any default by the Participating Member under any covenant, agreement or obligation of the Power Sales Agreement, other than a failure to make a payment required to be made under the Power Sales Agreement, KMPA may bring any suit, action, or proceeding in law or in equity, including mandamus, injunction, specific

H-41 performance, declaratory judgment, or any combination thereof, as may be necessary or appropriate to enforce any covenant, agreement or obligation of the Power Sales Agreement against the Participating Member. Such remedies shall be in addition to all other remedies provided for in the Power Sales Agreement.

KMPA Default

In the event of any default by KMPA under any covenant, agreement or obligation of the Power Sales Agreement, any Participating Member may, subject to the limitations and provisions set forth in the Power Sales Agreement, bring any suit, action, or proceeding in law or in equity, including mandamus, injunction, specific performance, declaratory judgment, or any combination thereof, as may be necessary or appropriate to enforce any covenant, agreement or obligation of the Power Sales Agreement against KMPA. Such remedies shall be in addition to all other remedies provided for therein.

Assignment of Agreement

The Power Sales Agreement shall inure to the benefit of, and shall be binding upon, the respective successors and assigns of the parties to the Power Sales Agreement; provided, that, except as provided therein, neither the Power Sales Agreement nor any interest therein (including Project Attributes), shall be assigned or transferred or sold by the Participating Member, including in connection with any sale, transfer or other disposition of Participating Member's system (a) without the written consent of KMPA, which consent shall not be unreasonably withheld, (b) nor if in the opinion of counsel to KMPA such assignment or transfer or sale would adversely affect the exemption from Federal income taxation of the interest on the Bonds. In the event of a proposed assignment, transfer, sale or other disposition of the Participating Member's system, the Participating Member shall provide timely notification to KMPA, and KMPA and the Participating Member will establish an agreeable schedule for KMPA and its counsel to respectively address the requirements of part (a) and part (b) of the preceding sentence. No such assignment, transfer, sale or other disposition shall relieve the Participating Member of any obligation under the Power Sales Agreement.

H-42

APPENDIX I

KENTUCKY MUNICIPAL POWER AGENCY POWER SYSTEM REVENUE BONDS, SERIES 2010

Specimen Municipal Bond Insurance Policy

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MUNICIPAL BOND INSURANCE POLICY

ISSUER: Policy No.: -N

BONDS: $ in aggregate principal amount of Effective Date: Premium: $

ASSURED GUARANTY MUNICIPAL CORP. (FORMERLY KNOWN AS FINANCIAL SECURITY ASSURANCE INC.) ("AGM"), for consideration received, hereby UNCONDITIONALLY AND IRREVOCABLY agrees to pay to the trustee (the "Trustee") or paying agent (the "Paying Agent") (as set forth in the documentation providing for the issuance of and securing the Bonds) for the Bonds, for the benefit of the Owners or, at the election of AGM, directly to each Owner, subject only to the terms of this Policy (which includes each endorsement hereto), that portion of the principal of and interest on the Bonds that shall become Due for Payment but shall be unpaid by reason of Nonpayment by the Issuer.

On the later of the day on which such principal and interest becomes Due for Payment or the Business Day next following the Business Day on which AGM shall have received Notice of Nonpayment, AGM will disburse to or for the benefit of each Owner of a Bond the face amount of principal of and interest on the Bond that is then Due for Payment but is then unpaid by reason of Nonpayment by the Issuer, but only upon receipt by AGM, in a form reasonably satisfactory to it, of (a) evidence of the Owner's right to receive payment of the principal or interest then Due for Payment and (b) evidence, including any appropriate instruments of assignment, that all of the Owner's rights with respect to payment of such principal or interest that is Due for Payment shall thereupon vest in AGM. A Notice of Nonpayment will be deemed received on a given Business Day if it is received prior to 1:00 p.m. (New York time) on such Business Day; otherwise, it will be deemed received on the next Business Day. If any Notice of Nonpayment received by AGM is incomplete, it shall be deemed not to have been received by AGM for purposes of the preceding sentence and AGM shall promptly so advise the Trustee, Paying Agent or Owner, as appropriate, who may submit an amended Notice of Nonpayment. Upon disbursement in respect of a Bond, AGM shall become the owner of the Bond, any appurtenant coupon to the Bond or right to receipt of payment of principal of or interest on the Bond and shall be fully subrogated to the rights of the Owner, including the Owner's right to receive payments under the Bond, to the extent of any payment by AGM hereunder. Payment by AGM to the Trustee or Paying Agent for the benefit of the Owners shall, to the extent thereof, discharge the obligation of AGM under this Policy.

Except to the extent expressly modified by an endorsement hereto, the following terms shall have the meanings specified for all purposes of this Policy. "Business Day" means any day other than (a) a Saturday or Sunday or (b) a day on which banking institutions in the State of New York or the Insurer's Fiscal Agent are authorized or required by law or executive order to remain closed. "Due for Payment" means (a) when referring to the principal of a Bond, payable on the stated maturity date thereof or the date on which the same shall have been duly called for mandatory sinking fund redemption and does not refer to any earlier date on which payment is due by reason of call for redemption (other than by mandatory sinking fund redemption), acceleration or other advancement of maturity unless AGM shall elect, in its sole discretion, to pay such principal due upon such acceleration together with any accrued interest to the date of acceleration and (b) when referring to interest on a Bond, payable on the stated date for payment of interest. "Nonpayment" means, in respect of a Bond, the failure of the Issuer to have provided sufficient funds to the Trustee or, if there is no Trustee, to the Paying Agent for payment in full of all principal and interest that is Due for Payment on such Bond. "Nonpayment" shall also include, in respect of a Bond, any payment of principal or interest that is Due for Payment made to an Owner by or on behalf of the Issuer which has been recovered from such Owner pursuant to the

Page 2 of 2 Policy No. -N

United States Bankruptcy Code by a trustee in bankruptcy in accordance with a final, nonappealable order of a court having competent jurisdiction. "Notice" means telephonic or telecopied notice, subsequently confirmed in a signed writing, or written notice by registered or certified mail, from an Owner, the Trustee or the Paying Agent to AGM which notice shall specify (a) the person or entity making the claim, (b) the Policy Number, (c) the claimed amount and (d) the date such claimed amount became Due for Payment. "Owner" means, in respect of a Bond, the person or entity who, at the time of Nonpayment, is entitled under the terms of such Bond to payment thereof, except that "Owner" shall not include the Issuer or any person or entity whose direct or indirect obligation constitutes the underlying security for the Bonds.

AGM may appoint a fiscal agent (the "Insurer's Fiscal Agent") for purposes of this Policy by giving written notice to the Trustee and the Paying Agent specifying the name and notice address of the Insurer's Fiscal Agent. From and after the date of receipt of such notice by the Trustee and the Paying Agent, (a) copies of all notices required to be delivered to AGM pursuant to this Policy shall be simultaneously delivered to the Insurer's Fiscal Agent and to AGM and shall not be deemed received until received by both and (b) all payments required to be made by AGM under this Policy may be made directly by AGM or by the Insurer's Fiscal Agent on behalf of AGM. The Insurer's Fiscal Agent is the agent of AGM only and the Insurer's Fiscal Agent shall in no event be liable to any Owner for any act of the Insurer's Fiscal Agent or any failure of AGM to deposit or cause to be deposited sufficient funds to make payments due under this Policy.

To the fullest extent permitted by applicable law, AGM agrees not to assert, and hereby waives, only for the benefit of each Owner, all rights (whether by counterclaim, setoff or otherwise) and defenses (including, without limitation, the defense of fraud), whether acquired by subrogation, assignment or otherwise, to the extent that such rights and defenses may be available to AGM to avoid payment of its obligations under this Policy in accordance with the express provisions of this Policy.

This Policy sets forth in full the undertaking of AGM, and shall not be modified, altered or affected by any other agreement or instrument, including any modification or amendment thereto. Except to the extent expressly modified by an endorsement hereto, (a) any premium paid in respect of this Policy is nonrefundable for any reason whatsoever, including payment, or provision being made for payment, of the Bonds prior to maturity and (b) this Policy may not be canceled or revoked. THIS POLICY IS NOT COVERED BY THE PROPERTY/CASUALTY INSURANCE SECURITY FUND SPECIFIED IN ARTICLE 76 OF THE NEW YORK INSURANCE LAW.

In witness whereof, ASSURED GUARANTY MUNICIPAL CORP. (FORMERLY KNOWN AS FINANCIAL SECURITY ASSURANCE INC.) has caused this Policy to be executed on its behalf by its Authorized Officer.

ASSURED GUARANTY MUNICIPAL CORP. (FORMERLY KNOWN AS FINANCIAL SECURITY ASSURANCE INC.)

By Authorized Officer

(212) 826-0100

Form 500NY (5/90)

APPENDIX J

KENTUCKY MUNICIPAL POWER AGENCY POWER SYSTEM REVENUE BONDS, SERIES 2010

Form of Bond Counsel Approving Legal Opinion

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APPENDIX K

KENTUCKY MUNICIPAL POWER AGENCY POWER SYSTEM REVENUE BONDS, SERIES 2010

Form of Opinion of Bond Counsel Relating to the Power Sales Agreements

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